Could value versus growth model orthodox approach to investing, be flawed?

The investment approach of value versus growth model is to compartmentalize stocks into categories, or boxes of either growth or value. Categorizing a large system into subsystems is how human thinking is trained and has evolved to deals with complex tasks. 

Value Versus Growth Model
S&P 500 returns 2019

“The investment approach of value versus growth model is to compartmentalize stocks into categories, or boxes of either growth or value”

WEALTH TRAINING COMPANY

So, in the physical world, an auto engineer or a mechanic sees under the hood various systems. For example, the trained technician will be able to identify, the braking system, fuel system, cooling system, or the electrical system, ignition system, and main components of the engine in a combustion vehicle. Moreover, electrical systems are designed with multiple circuits and have assigned circuit-breakers, according to the amperage carried along the wires. 

When faced with complex tasks, the human-mind compartmentalizes, which is fine, but what happens when things merge?

The value versus growth model of orthodox stock investors places stocks into two categories of either growth or value

But that also diverts investors’ attention from the market price and macro trends, which should be the main focus.

 

Human mind complex tasks

“When faced with complex tasks, the human-mind compartmentalizes, which is fine, but what happens when things merge?”

WEALTH TRAINING COMPANY

Put simply, it doesn’t matter whether an investor buys growth or value stocks. What matters is at what price the investors bought the stock. For example, the mega macro trend of our century, EV investing, which is already disrupting the trillion-dollar auto industry, there are two early players, Tesla (TSLA) and a less-known emerging Chinese champion Nio Inc (NIO).

Nio delivered more than 7,000 vehicles in December, up 121% year-over-year. Moreover, deliveries for the third quarter ended December 31, 2020, increased 111% from the year-ago value to 17,353 vehicles. 

“If you ask us what stock on NASDAQ could make investors more than a million US dollars in 520 weeks with just a modest investment, we would flag Nio”
Wealth Training Company

Nio’s battery swap technology keeps the price of its cars well below Tesla price models. So, we envisage Nio will soon dominate the Chinese market and has all the stars aligned to becoming a global champion, a global household name, of electric vehicles.

If you ask us what stock on NASDAQ could make investors more than a million US dollars in 520 weeks with just a modest investment, we would flag Nio.

Nio is in a good position in the world’s largest emerging market China, with the fastest-growing middle class in the world swelling from 39.1 million people (3.1 percent of the population) in 2000 to roughly 707 million (50.8 percent of the population) in 2018. Tesla is unlikely to be a Nio on their home turf, which has the support of the Chinese government. Yes, China could soon dominate tomorrows’ global auto industry. 

“China is now number one in fintech, number 3 in AI and machine learning, number 2 in wearables, number 2 in virtual reality, number 2 in educational technology, number 2 in autonomous driving”. 

They are running fast to be number one in those industries,” said hedge fund billionaire Ray Dalio.

If you are seeking mega alpha in China Nio could be just the stock
But back to the theme of value versus growth model, what matters is a company’s current market value whether the company is driving a mega macro trend, is on the winning side of the disruption, and the growth potential of its geographical market. If a company’s revenue is exponentially growing, then growth is value too.

In other words, if a stock is undervalued by the market, it is likely to receive better than average returns.

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