Several great listed companies have a direct investment plan. In contrast to value investing, investing in growth stocks also means foregoing the dividend yields that traditional stalwarts would offer. The MoS is the difference between the stock’s current (depressed) price and its true market price – the greater the difference, the higher the MoS.
Value investing means to invest based only on the actual value of the company today. Warren Buffett believes it is the single most important investing lesson he was ever taught. This difference protects the investor from poor buying decisions and downturns in the general market.
Nonetheless, growth investors will also look to traditional industries if they predict a possible major change in trend or change in consumer tastes. These investments will generally pay solid dividends that allow investors to reap the benefits of not only market gain, but compound their growth with dividends.
In the language of Warren Buffett, growth value multiples should only be applied to companies with a wide and deep moat. Let us say, Bank of America has reported earnings per share of $3.00. Next look at the market price. Graham’s recommendation for the defensive investor would be, in today’s terminology, to stick to index funds.
This is called the realization-of-value-problem and is a very real concern, for anyone who invests money in the stock market, because the longer it takes the market to realize the true value of a company, the lower the compounded annual returns will be.