Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing

Chapter 4. Growth Investing

[T]he greatest investment reward comes to those who by good luck or good sense find the occasional company that over the years can grow in sales and profits far more than the industry as a whole.^[59]

—Philip Fisher

Warren Buffett freely acknowledges that Philip Fisher's teachings influenced his investment philosophy. Fisher's philosophy, usually referred to as growth investing, is based on finding outstanding companies and staying with them through all the fluctuations of a gyrating market. Growth investing is investing in stocks of companies whose earnings are expected to grow at a higher than normal rate over a long time, not only for the next quarter or the next year.

When people think of growth stocks, they usually think of Microsoft, Intel, Cisco, and others. While many of the growth stocks come from high-tech industries, not all of them do. Coca-Cola, Wal-Mart, and Starbucks are but a few examples of non-high–tech growth stocks. Thus, investing in the high-tech sector is not synonymous with growth investing. Buffett invested in Coca-Cola when it was more of a growth stock than a value stock.

Coca-Cola as a Growth Stock

At the end of 2008, Coca-Cola was the single largest common stock holding in Berkshire's portfolio, amounting to 16 percent of the common stock portfolio. Most of the purchases were made in 1988 and 1989. At the end of 1988, Coca-Cola's book value per share was $1.07, whereas the stock price was $5.70 (split adjusted), giving it a market-to-book ...