What is his view on the distinction between 'value' and 'growth'? Why does he say they are 'joined at the hip'?

BuffettValue InvestingGrowth InvestingInvestment StrategyWarren BuffettBuffett's Letter to Shareholders
Created At: 7/30/2025Updated At: 8/17/2025
Answer (1)

Warren Buffett's View on the Distinction Between "Value" and "Growth"

Warren Buffett believes that categorizing stock investments into "value investing" and "growth investing" is an artificial and misguided classification. In his shareholder letters, he has repeatedly emphasized that this division is "nonsensical" or "meaningless," as all intelligent investing is inherently value investing. At its core, value investing involves purchasing assets below their intrinsic value, while growth is merely a crucial factor in assessing intrinsic value—not a separate category. Buffett notes that the market often labels stocks with low price-to-earnings or price-to-book ratios as "value stocks," while those with high growth potential are dubbed "growth stocks." However, this distinction overlooks the impact of growth on value, potentially causing investors to miss genuine opportunities. For example, his investments in Coca-Cola or Apple combine robust growth with value principles.

Why They Are "Joined at the Hip"

Buffett argues that "value" and "growth" are "joined at the hip" because growth is an integral component of value calculation. Specifically:

  • Value Stems from Future Cash Flows: An asset’s value depends on the sum of its future cash flows discounted to the present. Without growth (i.e., stagnant or declining cash flows), value remains limited; conversely, strong growth significantly enhances future cash flows, thereby increasing intrinsic value.
  • Growth Is Not Independent of Value: Quoting his mentor Benjamin Graham, Buffett stresses that a "growth stock" is not a sound value investment if overvalued. Conversely, even a "value stock" with hidden growth potential can deliver excess returns. He asserts that value investing that ignores growth is "incomplete," while growth investing detached from value is speculative.
  • Real-World Examples: In Berkshire Hathaway’s investments—such as acquiring GEICO or investing in Amazon—Buffett made decisions precisely by recognizing the fusion of growth and value. This demonstrates that the two are not opposing forces but interconnected and inseparable.

In summary, Buffett’s perspective encourages investors to look beyond labels and focus on an asset’s intrinsic value, where growth serves as an indispensable driver.

Created At: 08-05 08:05:37Updated At: 08-09 02:08:06