STEPHEN CRANSTON: Growth vs value, a distinction that doesn’t catch mice
Binary has become outmoded, especially since growth shares have become more valuable
Back in the 1990s there was a clear binary division of the stock market between growth and value shares. It was often as crude as calling all shares with a below average price-earnings (p:e) ratio value shares, and those with an above average p:e growth shares. Yet today’s p:es are a meaningless snapshot at an arbitrary moment in time. Long-term investors should be concerned about what the shares will be worth in 10, 20 or 100 years, not today.
One disagreement that will never go away is on the concept of reversion to the mean. This, put simply, suggests that what is cheap today will go up to at least its historic average, and expensive shares will go down to their averages. A staunch value manager such as Rowan Williams-Short of Vunani believes this to be a truism, like the sun rising in the morning. Growth managers believe there are decadent companies that are on the road to permanent decline. They are badly run companies in the wrong place. For example, the SA textile compa...
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