Live Both: Mastering The Growth Vs. Value Investing Paradox
Young woman sitting on maze and looking to the distant tree. (3d render) getty
When I was in high school, I became fascinated with stock market investing. But after only a few weeks of studying it, one thing became clear: I had to pick a side.
On one side were those captivated by growth—the optimists who cheered on rising revenues and loved backing a winning horse. On the other side were the skeptics—penny-pinchers who saw hype as a red flag and preferred scouring neglected corners of the market for hidden value. These were the value investors, searching gutters for overlooked $5 bills.
This age-old tension is known as the growth versus value investing paradox.
Growth investors pay a premium for companies with accelerating revenues and compelling futures. Value investors, by contrast, seek companies with strong fundamentals that are temporarily out of favor, often trading at discounted price-to-earnings (P/E) ratios.
As a teenager, I recognized the merit in both approaches, but I felt pressure to choose. In war, you cannot execute a blitzkrieg and a siege at the same time. Similarly, in tennis, you cannot charge the net and play defensively simultaneously. Or can you?
This tension is a classic paradox. A paradox is a situation that appears logically contradictory but, upon closer inspection, may reveal a deeper or more complex truth. As Charles Handy explained in The Age of Paradox , modern life forces us to navigate complexities our ancestors never faced, such as the tension between efficiency and humanity or between individual freedom and collective responsibility.
Paradoxes are difficult to manage because our minds are wired for binary choices like fight or flight, yes or no, and buy or sell. Either-or thinking helps with quick decisions and survival. However, paradoxes require a different type of reasoning that embraces both perspectives at once.
In investing, this means resisting the urge to pick a side and instead learning to hold the desire for growth and the discipline of value in creative tension. Why Art Helps With Investing Paradoxes
Art, more than logic or spreadsheets, helps us make sense of complex truths. Pablo Picasso once said, 'Art is a lie that makes us realize truth.' Paradoxes often live at this deeper level where metaphor can reach but data cannot.
George Lakoff and Mark Johnson, in Metaphors We Live By , describe metaphor as understanding one thing in terms of another. For example, we think of time as money when we say we are 'spending time' or 'saving time.' Emotions are also described as liquids, such as when someone is 'boiling with anger' or has a 'heart overflowing.'
Metaphors make complex truths more understandable and relatable. The more metaphors we use to explore a paradox, the more insight we gain into the deeper truth it represents.
To develop meaningful metaphors, start with a familiar concept that is tangible and accessible. Then identify a shared underlying principle between that familiar idea and the more abstract concept you want to understand. This shared principle is the foundation of the metaphor.
Using this approach, I have found two metaphors that help reconcile the growth versus value investing paradox: waves and volcanoes. Metaphor 1 For Navigating The Growth Vs. Value Investing Paradox: Waves
A crowded day at Pipe with dozens of surfers and photographers all trying to catch the perfect wave. getty
I worked as a surf instructor in college and have spent most of my life riding the waves of the ocean. A wave can be big and exhilarating, or small and disappointing. The best waves usually attract large crowds. If you move away from the crowds, you might find an underrated spot, but more often the waves are not as good.
My favorite strategy was to paddle just outside the most crowded break. The waves might not have been quite as good, but there was less competition and more opportunity to enjoy the ride.
In investing, this translates to looking for companies that show real potential but are not overly hyped. These are not the flashy front-runners, but the reliable backups who are quietly positioned for solid performance. This allows investors to find rising revenue potential at a more reasonable price. Metaphor 2 For Navigating the Growth Vs. Value Investing Paradox: Volcanoes
Farmers plant chilies in a rice field on the slopes of Mount Merapi, Yogyakarta, Indonesia, July 9, ... More 2024. getty
Volcanoes are one of nature's most paradoxical features. They are among the most destructive forces on earth, yet they also create fertile ground that sustains life. Living near a volcano brings both great risk and great reward.
If you plant yourself at the edge of an active eruption, you may gain quickly, but you also risk losing everything. However, if you build near a dormant or stabilized volcano, like in parts of Hawaii, you benefit from rich soil and lower risk.
In investing, this is similar to focusing on companies that have moved past their most volatile growth stage but still have fertile ground for long-term performance. They are no longer speculative, but they are not yet overcrowded. These are companies in the sweet spot between high risk and full maturity. Embracing The Tension In Investing
Paradox cannot be fully resolved by logic alone. It requires a shift in thinking and a willingness to see through both lenses at once. This is the heart of the investing paradox: holding onto both growth and value as meaningful components of a more nuanced strategy.
In an investing world that often demands clear choices, wisdom may lie in learning to ride the second-best waves while planting near a slightly less fertile/active volcano.
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