The false war between growth and value

Summary: Financial media frames investing as a battle between growth and value, but serious research shows the most successful stocks blend both qualities — strong cash generation and meaningful growth. A recent academic study validates what disciplined investors already practise: labels don’t build wealth, evidence-based stock selection does.

A fascinating academic research paper landed on my desk recently, and I think its findings deserve wider attention among Indian investors. Titled ‘The Alchemy of Multibagger Stocks’, it’s a working paper from Birmingham City University that takes a rigorous statistical look at what actually drives exceptional stock market returns. The researcher, Anna Yartseva, studied 464 American stocks that delivered at least tenfold returns between 2009 and 2024 – proper multibaggers by any definition.

What makes this paper valuable isn’t just its conclusions, though those are interesting enough. It’s that the researcher applied serious econometric methods to questions that the investment industry typically answers with anecdotes, case studies and gut feeling. When you subject popular investment wisdom to proper statistical testing, some of it holds up. And some of it, quite frankly, falls apart.

One finding in particular caught my attention because it validates something I’ve believed for years: the whole growth-versus-value debate that dominates financial media is, to put it plainly, nonsense.

The paper found that among stocks destined to become multibaggers, the best performers weren’t purely ‘growth’ stocks or purely ‘value’ stocks. They were both. The stocks that delivered the most extraordinary returns combined high growth potential with strong value characteristics — particularly robust free cash flow yields and reasonable valuations relative to their fundamentals. Companies that were either all growth and no value or all value and no growth systematically underperformed.

This shouldn’t surprise us, but it apparently surprises much of the financial media, which continues to treat growth and value as opposing camps in some kind of ideological war. Every few months, we’re treated to breathless headlines about how ‘value is beating growth’ or ‘growth stocks are back in favour’, as if investors must pick a side and stick with it through thick and thin.

I wrote about this a few years ago in this very column, prompted by some particularly silly headlines comparing Warren Buffett’s Berkshire Hathaway to Cathie Wood’s ARK Innovation ETF. The Financial Times was proclaiming that Buffett was ‘closing in’ on Wood as tech stocks tumbled, framing it like some kind of sporting contest. Bloomberg, covering the exact same facts, noted that both had posted similar two-year gains despite ‘divergent strategies’.

Both headlines were technically accurate. Both were also, for practical purposes, useless to actual investors trying to build wealth over the long term. The growth-versus-value framing makes for ‘engagement farming’ journalism, but it obscures what really matters: whether a company can generate returns over time.

At Value Research Stock Advisor, we never organised our thinking around this false dichotomy. When someone asks me whether we recommend growth or value stocks, my answer remains the same: we recommend stocks that will make money for you. This sounds like a non-answer to people who’ve been trained by the financial media to think in these categories, but it’s actually the only honest answer.

The academic research now confirms what we’ve long practised. The paper found that free cash flow yield — essentially, how much actual cash a company generates relative to its market price — was the single most important predictor of future multibagger performance. More important than earnings growth rates, more important than revenue expansion, more important than any of the metrics that ‘growth’ investors typically obsess over.

Think about what this means. A company can be growing rapidly, but if that growth isn’t translating into real cash that shareholders can eventually claim, the stock may disappoint. Conversely, a company trading at a modest valuation with strong cash generation — the classic ‘value’ profile — has the raw material for compounding returns. The best investments, it turns out, combine both: genuine growth prospects purchased at prices that leave room for appreciation.

This is precisely how we approach stock selection in Stock Advisor. Our research team doesn’t sit in the ‘growth’ corner or the ‘value’ corner. They examine companies from multiple angles — business quality, competitive position, management integrity, financial health and, yes, valuation — to identify those with genuine wealth-creation potential. The labels come later, if at all.

Our three portfolios — Long-term Growth, Aggressive Growth and Dividend Growth — aren’t organised along the growth-value spectrum either. They’re organised around investor goals and risk tolerance. The Long-term Growth Portfolio focuses on companies with consistent performance and sustainable advantages. The Aggressive Growth Portfolio targets higher-potential opportunities. The Dividend Growth Portfolio combines regular income with prospects for capital appreciation. Each portfolio contains companies that might be labelled ‘growth’ or ‘value’ depending on who’s doing the labelling, but that’s beside the point.

What matters is the research process behind each selection, and the ongoing monitoring that follows. Every month, our team reviews each portfolio thoroughly, evaluating whether the investment thesis remains intact and whether any changes are warranted. When a stock no longer meets our criteria — whether due to deteriorating fundamentals, better opportunities elsewhere or valuations that have stretched beyond reason — we notify you immediately with clear explanations.

This systematic, research-driven approach is what distinguishes Stock Advisor from the noise of financial media. We’re not here to entertain you with stories about which investment style is winning this quarter. We’re here to help you build wealth over time, using the kind of disciplined analysis that academic research increasingly validates.

At Rs 9,990 per year, Stock Advisor provides access to all three portfolios, detailed investment theses for every recommendation and continuous updates from our analyst team. Whether you’re a cautious investor seeking stability, someone with an appetite for higher growth or focused on building income streams, we’ve built a solution that serves your actual goals rather than fitting you into arbitrary categories.

The growth-versus-value debate will continue in the financial press — it makes for good copy, after all. But you don’t have to participate. Focus instead on what the evidence actually shows: the best investments combine many different qualities, and the labels matter far less than the underlying quality of what you own.

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