Monday 8 February 2021
If you’ve heard about the constant struggle between “growth” and “value” stocks, you’re probably aware that lately, it hasn’t been much of a contest. Over the past 13 years, growth has easily outperformed value. In Howard Marks’ latest memo, he discusses this contest and offers a different way to look at this decades-old debate.
Firstly, he challenges the idea that these two investing styles are mutually exclusive. Much like two rival political factions, the growth and value parties have separated the investing community and has created an intense rivalry. To value investors, growth investors are reckless and naive. To growth investors, value investors are conservative and living in the past. To Marks, there are merits to both approaches and the best investors in 2021 are incorporating aspects of both value and growth investing into their decisions.
The second point Marks is that this time actually is different. An old investing adage is that ‘the four most dangerous words in markets is “this time is different”’. However, Marks makes the point that the internet has truly changed the investing world. It has accelerated the pace of innovation, it has lowered the barriers to entry in many industries and it has made developing and scaling products easier than ever before. Mark writes about how this has changed the way he thinks about ‘mean reversion’ and how many of these internet companies do not revert to the mean. Instead they find ways to reinvest their profits to continue growing and compounding. This is the antithesis of how Marks learnt about investing as a young investor where stocks reverted to the mean after periods of outperformance or underperformance.
History’s greatest investor, Warren Buffett, once said, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read.” So whenever Marks releases a new memo, we consider it a must read. This one is no different.