I finished reading Phil Fisher's book Common Stocks & Uncommon Profits over the weekend. His basic investment philosophy was that a good investment now in a growth stock could be held forever and multiply by 1000% or more vs a good value stock which could be bought at maybe 50%-75% off.
Fisher considered buying growth stocks at any price, figuring that 10 years from now would cure any problems with overvaluation issues. He did offer the opinion that perhaps you could buy some on a plan, buying some now and buying in increments just in case there was a broader market crash.
I do wonder if he saw some of the P/E ratios today if he would feel the same way. I look at companies like Coca Cola (KO) that have not appreciated in any way (all time high was in 1997) because of overvaluation. KO traded at over 50x earnings and is now finally in line with the S&P 500 P/E ratios. A worse example is Cisco (CSCO) where the investor would have lost 75% of his investment because of an even more extreme valuation of 85x earnings and now a market multiple that is below the S&P500.
After reading his book, I should hold on to growth stocks and allow for some small overvaluation in the short term as long as it did not become excessive (like above KO and CSCO examples). A good example in today's market is COH, which I consider to be one of the best growth stocks out there.
Back in 2010, I was able to buy COH in the mid 30's. At the time, I considered fair value to be at 40 and sold covered calls until COH was called away. I have not had a chance to get back in as the stock currently trades in the low to mid 60s. Since that time I calculate that fair value has risen from 40 to 49. While valuation is higher, I do not consider it excessive as I can see COH trading far higher in the future.
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