I saw a post earlier today discussing the the disadvantages and advantages of each investing strategy so I have decided to share my view on this.

The table below provides a very real example of the difficulties of valuing growth and perils of overpaying for growth:

Growth bs Value Table

Company A represents a steady mid-single-digit growth company. It grows its earnings from €0.10 a share today to €0.18 a share by year 10. At the outset, it is valued at 15 times those earnings and it retains that price-to-earnings ratio (i.e. valuation ratio) over the ten years, and delivers a return to shareholders of 79%, or 6.0% compound per annum. Company B, in contrast, is growing at a much faster rate of 15% and is priced at 35 times its earnings by investors at the outset in the expectation that it will be growing at that rate for a long-time. But Company B's growth rate slows after 5 years and declines to match that of Company A by year 10. Investors, however, now only value its slower growing earnings at 15 times, the same as Company A. The return to share owners over the same 10-year period is a much lower 30%. While Company B tripled its earnings from €0.10 a share at the start to €0.30 a share by year 10, this was not sufficient to overcome the 'de-rating' of going from 35 times earnings to 15 times earnings. So, both were growth companies, with one growing faster than the other. There is always a danger in paying high price-to-earnings ratios for current earnings. To really justify such ratings, a company needs a huge market opportunity and a competitive advantage of some sort to ensure that it can keep competition away from sharing in the growth opportunity. Valuing growth is tricky. And therein in lies the concerns of many investors today. The S&P 500 Index trades at 28 times peak 2019 earnings (3,750/$135). Since 1952, investors have, on average, paid 15.7 times the index earnings or nearly half the current level. A low interest rate environment does justify a higher price-to-earnings multiple. But how much higher? And how long will interest rates stay so low? All relevant questions, but so difficult to answer.

I would love to hear your opinions on this page especially during this bull market.