Dakota Office Productsgmo the Value Versus Growth Dilemma

Abstract The case GMO: The Value versus Growth Dilemma describes Dick Mayo’s puzzlement by the New Economy’s continuous bias toward growth-investment strategies. As one of the most celebrated value investors in the United States, he examines the basics of his philosophy versus that of a growth orientation by evaluating long-term expected returns of several value and growth stocks. The following paper was examined to pursue several objectives: (1) to define value and growth investing – where the differences lie and whether one approach is superior to the other or whether both have merit; (2) to perform basic valuations of Cisco Systems (a growth company), CVS, R.R. Donnelly and Manor Care (value companies) and to compute their long-term†¦show more content†¦While value investors may miss out on stock price surges like those experienced back in the days of the dotcom bubble, their shares’ prices are usually less susceptible to market downturns because these investors usually do not unload their investments and flee the market when there are sudden downward swings. In contrast, growth investing is characterized by pursuing stocks that are considered to have some above-average or exceptional future growth due to â€Å"less tangible† qualities that will produce gains higher than those of industry peers, if not the overall market. Investors can have a difficult time evaluating these stocks but are nevertheless drawn by factors such as a sustainable competitive advantage, funds set aside for capital investments in the company, or some potential market opportunity of which the firm can take advantage. These stocks tend to have high price-to-earnings ratios, as investors have faith in the future of the company and are willing to pay handsomely for these securities, which in turn drives prices even higher. During times delineated by a bull market and/or an economic expansion, investing in growth stocks can be very lucrative as they can catch onto the market’s upward momentum and appreciate very quickly, creating opportunities for profit-taking. On the other hand, if there is a sudden downward swing in the market, they tend to be sold more quickly and drop in price more dramatically than value