Value vs Growth Investing

I attended an investment course over the weekend conducted by Mr Ooi Kok Hwa, a Financial analyst with Dynaquest Sdn Bhd and a columnist in StarBiz. The course was titled "What can we learn from the investment gurus, like Benjamin Graham and Warren Buffett?

Both Mr Graham and Buffett really needs no further introduction as many articles and books were written about them. Their investment philosophy and techniques are copied all over by the investment fraternity and needs no introduction.

What I find most interesting in the course was the compilation of data Historical Performance 95-05 KLSE BlueChips and its results.

From the analysis, I have outlined below the top 25 companies in average total return per annum(ie Capital Gain + Dividend income)

The format is as follows: Stock Name = Total Return pa(Cap Gain + Div Income) (Track record)

1) Maxis 27% (21.8 + 5.3) (3yrs)-no longer listed
2) Biport 22.6% (15.3 + 7.3) (4)
3) BJToto 21.3% (6.6 + 14.7) (10)
4) KLCCP 20.4% (16.5 +3.9) (1)
5) PBBank 19.1% (13.1 + 6) (10)
6) Malakoff 17.2% (12.8 + 4.4) (10)-no longer listed
7) SPSetia 16.5% (12.5 +4) (10)
8) IOI 16.5% (12.9 +3.7) (10)
9) Star 15.8% (11 + 4.8) (10)
10) Gamuda 15.5% (11.1 + 4.4) (10)
11) BAT 14.5% (6.4 + 8.1) (10)
12) MISC 14.5% (9.8 + 4.7) (10)
13) Carlsberg 12.3% (4.4 + 7.9) (10)
14) Airasia 11.9% (11.9 + 0) (1)
15) Plus 11.7% (9.1 + 2.6%) (3)
16) Maybank 10.1% (7 +3.1) (10)
17) Astro 9.6% (9.4 + 0.3) (2)
18) Tanjung 9.5% (5.9 + 3.6) (10)
19) Mox 9% (3.7 + 5.3) (10)
20) Guiness 8.9% (2.2 + 6.7) (10)
21) HLBank 7.7% (4.8 + 2.9) (10)
22) PPB (7.6%) (3.9 + 3.8) (10)
23) Nestle (7.6%) (3.1 + 4.6) (10)
24) PetDag (7.5%) (4.2 + 3.2) (10)
25) Commerz (7%) (5.7 + 1.3) (10)

Althought the data selected is up to 2005, the results yielded some important facts. The salient points from the study done includes:-

1) 2nd liners did not do well during the 10 years period with an average loss of -4% pa

2) Growth stocks(BiPort, KLCCP, PBBank, SPSetia) investment performed better than value stocks (BJToto, BAT, Carlsberg). The growth stocks outperformed value stocks by 100%. The real challenge is to identify growth stocks.

I would add that although most investment advisers do not propogate "timing the market", it would be useful if some form of preliminary study of the stock is done before buying. The study includes checking on financial standing, valuation and charts to ensure that we do not buy them at its PEAK.

For your information. Value Investment is concerned with the current price and cares much less about the future earnings growth of the company. On the other hand Growth Investment is concerned with the earnings and anticipate higher company's future growth rate will contribute to higher earnings, and thus, higher stock price. It also attempts to identify companies with above average growth prospects.