Money Health: A Buffett Approach..!!

One of the most basic questions in the investment world which haunts every one..Growth rate or Value of share?
Market experts debate the attractiveness of growth versus value stocks, and mutual funds neatly chop up the market into “growth” and “value” funds.

If you Just ask Warren Buffett, the distinction between growth and value is flawed.He doesn't seem to differentiate much between Growth and Value. 

To Buffett all investing is about "Value". Assessing a company’s growth prospects is simply one part of gauging value. 

Rapid growth in sales and profits can add a ton of value to companies whose shares may at first look costlier. Some of Buffett’s recent buys clear out that notion.

When Berkshire acquired Burlington Northern Santa Fe in 2010, the railroad had a not-so-lean price/earnings ratio of about 20, but it had increased earnings at an average annual rate of 19% for seven years.

Lubrizol had a 5 earnings growth rate of about 40% when Hathway bought it in 2011. 

Buffett doesn't look at just one growth-related parameter while assessing a company’s value. As he noted in that 2000 letter to shareholders, a high growth rate can sometimes “destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years.”

According to Mary Buffett,his former daughter-in-law and colleague, Buffett wants a firm’s earnings to have increased reasonably consistently over the prior decade, and he looks at a number of other earnings-driven variables. 

These include 

• Return on equity, 
• Return on retained earnings, 
• Free cash flow and debt—which should be no more than five times annual earnings. 

Buffett is concerned with the quality of a company’s earnings and its sustainability over the long haul.

Happy Investing..!!