Business happens fast. Prices surge and dip dramatically. More than ever, investors have the tools to chase financial fads in real time, hoping to capitalize, while further feeding the frenzy. At Kanos Capital Management, our vision is firmly fixed to the horizon.
Value versus growth investing
Value investing is a strategy in which investors look for stocks that are underappreciated by the market, trading at less than their intrinsic value, typically determined by financial metrics like revenue, earnings, or cash flow. Because they are associated with established companies, they are viewed as lower risk. The hope is, once the market realizes a company’s intrinsic value, its stock price will rise.
Growth investing focuses more on future potential than intrinsic value, with particular emphasis on stocks that are increasing in value faster relative to the market as a whole. Generally speaking, growth companies incorporate new innovations, efficiencies, or methodologies, mostly concentrated in the technology, health care, and communications sectors. Growth companies generally trade at high valuations and usually don’t pay dividends.
It’s important to note that most companies, and portfolios by extension, don’t fall neatly into one category but combine elements of value and growth.
Adding value to value
At Kanos, we’re predominantly value-oriented in our investment style. Since 1926, when the U.S. began earnestly tracking financial data, value stocks have outperformed growth stocks on average. Growth stocks have had a big run in recent years, but that usually means value stocks will be more appreciated in the near future as growth becomes overvalued. It’s only when you look at narrower periods of time that growth stocks have an advantage.
As part of our process, we conduct thorough research to understand a company’s intrinsic value and market context. However, we also consider the growth prospects of potential investments to find the most attractive candidates for our clients, capitalizing on opportunities as they present themselves.