Here’s a great interview with Joel Greenblatt on the Money Life with Chuck Jaffe Podcast discussing his definition of value investing and why ‘growth’ stocks like Amazon can also be value stocks. Here’s an excerpt from the interview:
Greenblatt: Stocks are ownership shares of businesses that you value and try to buy at a discount. So it really has nothing to do with cheapness per se, like is something trading at low price-book or low price-sales. That’s not what we call value investing.
We value a business like we’re a private equity firm buying the whole business and trying to buy it at a discount. Doesn’t mean that Amazon doesn’t qualify. If we think Amazon is worth $6000 a share because it’s worth a very high multiple because of its growth rate, its franchise, its network effect, and it’s trading at $3300, that’s a value stock to us.
In other words, we’re valuation based investors, and as Warren Buffett would say – growth and value are tied at the hip. How much a company is earning, or cashflows are going to grow over time, is how you value a company, So, you need both components to come up with a valuation.
You can listen to the entire interview here. (Interview starts around 11:42):
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