In his recent interview on The Korea Economic Daily Global Edition, Howard Marks discussed why he believes value investors should think bigger, and consider investing in fast growing companies. Here’s an excerpt from the interview:
The essence of value investing is getting good value for your money. Now value investing over the years has kind of been standardized to mean investing in things where there’s limited uncertainty, high predictability. That means the future is easy to foresee and low valuations. So the future is not very dynamic, but the stock is inexpensive.
So in other words not great but also not expensive and the question is why can’t a value investor think bigger and why can’t a value investor think about fast growing companies?
So if you think about fast-growing companies now you are talking about companies with the dynamic future, but the future is always uncertain so clearly growth investing can’t be as… based on fixed precise numbers to the same extent, you have to accept more uncertainty, and you have to pay more because the future is promising.
So it’s harder to do… excuse me it’s harder to do right!
But it shouldn’t necessarily be off limits. Now what I do think though is, so that’s the principle. The principle is that even the value investor should be open to companies that are fast growing and have a dynamic future and are high priced, based on the numbers.
But the realistic side is you can only do those things safely and dependably if you’re an expert. So I don’t think that your readers should try to do high-tech investing on their own, because you need an expertise. You have to spend a lot of time doing it. You can’t do it in your part-time, and when you get to a point in the market like this where there’s been a substantial up move and there’s a lot of optimism incorporated in stock prices the market tends to treat all high-tech companies as if they’re going to be successful.
We know that a small percentage will be very successful, so it’s risky to invest in high growth companies without expertise at a time when they’re in favor. That’s the bottom line.
You can watch the entire interview here:
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