Many people mistake Warren Buffett for a value investor… someone who buys stocks only when they are trading at dirt cheap prices.
In reality, Buffett's a growth investor. And he'll pay up for quality.
A case in point is his August 2015 $US37 billion purchase of aerospace parts manufacturer Precision Castparts.
Even Buffett himself acknowledged paying a steep price, telling CNBC television at the time…
"This is a very high multiple for us to pay."
Buffett's Berkshire Hathaway paid 17.5 times Precision Castpart's projected 12-month profit, a hefty premium for a cyclical manufacturing company.
A value investment it is clearly NOT. Instead, Buffett is buying what he thinks is a wonderful company at a fair price rather than a fair company at a wonderful price.
The ASX is chock full of fair companies.
Take Seven West Media Ltd (ASX: SWM): facing a near-unstoppable terminal decline in its largely offline media industry conditions of free-to-air television and magazines. The Seven West Media share price has fallen over 60 per cent in the past three years.
Take Virgin Australia Holdings Ltd (ASX: VAH): in the past five years, this $1.6 billion company has made just one round of profit, amounting to all of $23 million. More concerning yet, it hasn't had one year of positive free cash flow in that time. And all this at a time of low oil prices. The Virgin Australia share price has fallen more than 50 per cent over the past three years.
Take Myer Holdings Ltd (ASX: MYR): floated to great fanfare at $4.10, today the Myer share price languishes at around $1.00. Retailing is already a tough business, and is about to get a whole lot harder come Amazon's arrival in the country
With not much growth on the horizon — each company is facing some serious competitive and macro headwinds — it's hard to imagine how things get better from here.
That said, I'm sure there are plenty of hard-core value investors sniffing around these stocks at their current valuations.
Warren Buffett's mentor Ben Graham calls these "cigar butt" stocks.
The theory goes such companies have poor outlooks yet because you are able to pick them up at bargain prices, a temporary upturn in sentiment can make that one last puff on the cigar butt a lucrative investment.
The problem is twofold…
1) You need to buy at the right price, and the right time.
2) You need to sell before the poor economics of the business win out, something that usually sends the share price into a tailspin.
Buffett has long given up on cigar butt investing. And I have too. You have to watch these dogs like a hawk, and to be frank, I've got much better things to do with my time.
So while grabbing a quick 20 per cent or even 50 per cent profit in a beaten-down "cheap" stock sounds nice…
The REALLY big money is made in high quality stocks that have strong and durable competitive advantages with long growth runways ahead.
Something like Woolworths Limited (ASX: WOW), back in the day…
Or Commonwealth Bank of Australia (ASX: CBA), back in the day…
Or even Santos Ltd (ASX: STO), back in the day…
The opportunity today is in faster growing small to medium ASX stocks.
A company like Corporate Travel Management (ASX: CTD).
Last week, for seemingly the umpteenth time, the company upgraded its profit guidance, something that sent the Corporate Travel Management share price to yet another all time high.
The Corporate Travel Management share price has gained over 20 per cent so far in 2017.
But in the time since Scott Phillips first recommended Corporate Travel as a buy to his Motley Fool Share Advisor members, the shares have soared a massive 938 per cent higher.
To put that gain in context, a 938 per cent gain turns an initial $5,000 investment into over $50,000.
It turns $10,000 into over $100,000.
It turns $20,000 into over $200,000.
Stating the obvious, those sorts of gains can be truly life-changing. And certainly much more so than cigar butt investing.
Those are sorts of gains almost always come from investing in growth stocks. But that's only one piece of the puzzle.
Arguably the hardest part is holding on to these life-changing stocks.
— Holding on through the inevitable ups and downs of the stock market.
— Holding on through the inevitable ups and downs of the individual stock.
— Resisting the urge to sell after a 50%, 150% or even 250% gain simply "to lock in a profit." (And don't even get me started on the utter stupidity of stop losses.)
It takes just as much skill to ride these growth stocks higher as it does to pick them in the first place.
The investing world is littered with people who sold too soon.
The people who bought Apple shares at $5, sold them at $12, and sat on the sidelines as they watched Apple shares soar to over $140.
The people who lost patience with CSL Limited (ASX: CSL) shares, sold them at $5, and missed out on that stock's rise all the way to over $130.
Not so our own Scott Phillips.
He has the expertise to pick huge winners like Corporate Travel Management, AND the skill and experience to advise you hold the shares (and even buy more along the way) to what can be those huge, life-changing 938 per cent gains.
I'm lucky enough to have Scott Phillips' stock picking skills on my side, courtesy of my Motley Fool Share Advisor membership.
He has guided me to some of the biggest winners in my portfolio, including Corporate Travel Management and another of his big winners, Challenger Ltd (ASX: CGF).
As I look over all the recommendations Motley Fool Share Advisor has made since we first launched in late 2011, the truly big winners are all growth stocks.
Like Corporate Travel Management and Challenger.
Like Solomon Lew's Premier Investments Limited (ASX: PMV), up over 130% since Scott first recommended the stock as a buy to members of Motley Fool Share Advisor.
Like bionic ear company Cochlear Ltd (ASX: COH), up over 140% since Scott recommended Motley Fool Share Advisor members buy the stock.
Of course, Scott doesn't get every pick right. No-one does. The Crown Resorts Ltd (ASX: CWN) share price has fallen 3 per cent since Scott recommended the gaming company as a buy, and Westfield Corp Ltd (ASX: WFD) shares have also fallen 3 per cent from the time Scott first recommended the shopping centre stock as a buy.
Losers are part of the territory. If you're not prepared for some losses, you're in the wrong game. Leave your money in the bank.
But if you want to make the really big money in shares…
And follow in the footsteps of Warren Buffett, the world's richest stock market investor…
You'll get into high quality, growth stocks, and the sooner the better.
If you're interested in getting access to all Scott's research, including how you can find out the names of his top 3 best buys now ASX picks, click here for more details.
