The debate between value vs growth continues to make headlines, stemming from growth stocks’ outperformance relative to value and the long-anticipated rotation back into value stocks.

Here's a little thread on...

1) There's no official definition of value or growth, S&P Global measures value stocks using three factors: ratios of book value, earnings, and sales to price. Growth stocks are measured by sales growth, ratio of earnings change to price, and momentum…whatever that really means.

2) Over the past 27-year period, growth has outperformed.

3) Growth stocks have outperformed value stocks by over 100% since the bottom of the Great Recession.

4) What’s interesting is investors typically prefer value stocks because they are considered cheaper and are expected to decline less in a downturn or selloff. In the months leading up to the financial crisis, value stocks declined to a greater degree than growth stocks.

5) I am not making a call on whether value or growth stocks will outperform going forward, or if one will perform better in the next sell-off. I am arguing that investing based on style labeling using simple definitions of value or growth is the wrong approach to begin with.

6) A company is neither cheap nor expensive because of where it sells relative to recent fundamentals. These classifications of value or growth are just a convenient box ticking, quantitative oriented practice used by consultants which can distort the investing process.

7) While different styles, genres, or investing factors may go in and out of favor at times, at the end of the day, the value of a stock is all the cash that can be taken out of a company going forward.

8) Perhaps there was a time when information was less ubiquitous and fewer rocks were left unturned and buying a basket of stocks selling for a low multiple relative to earnings or book value would provide market beating results.

9) While this strategy was still overly simplistic, it could have worked. In today’s world where information is easily available, selecting a basket of stocks solely based on low multiples will very likely result in a pretty mediocre basket of companies on average.

10) Every investing decision should be a value decision based on what one estimates an asset is intrinsically worth; i.e. how much cash will be returned to shareholders, when cash will be returned to shareholders, and what interest rates are.

11) This could mean we find a company attractive if it is selling for 5x trailing earnings, 100x earnings, or even if it has negative earnings. The heart of value investing is based on the accuracy of the business analysis and then not overpaying for the business.

12) This means giving a far greater weighting to qualitative factors such as a company’s overall market opportunity, pricing power, durability of its competitive advantage, ability of management to allocate capital, etc.