Growth at a reasonable priceClick on question to view answer
- What is growth at a reasonable price (GARP)?
Growth at reasonable price or GARP is an investment style that incorporates a combination of both value and growth investing. It looks for companies that are somewhat undervalued and have solid sustainable growth potential. The criteria which GARP investors look for in a company fall in between those sought by the value and growth investors. Below is a diagram illustrating how the GARP-preferred levels of price and growth compare to the levels sought by value and growth investors:
- Who uses GARP?
Reitway Global and many other established funds follow a GARP investment strategy - none more famous however, than Peter Lynch. With an enviable track record and having written several popular books, including the best-seller "One Up on Wall Street" and "Learn to Earn", the GARP style was tested and proven by Lynch and his firm, Fidelity. Many consider Lynch the world's best fund manager, partly due to his 29% average annual return over a 13-year stretch from 1977-1990.
- How does GARP investing fare in different market conditions?
Because a "growth at reasonable price" (GARP) strategy employs principles from both value and growth investing, the returns that GARP investors see during certain market phases are often different than the returns strictly value or growth investors would see at those times.
For instance, in a raging bull market the returns from a growth strategy are often unbeatable. For example, in the dotcom boom of the mid- to late-1990s, neither the value investor nor the GARP investor could compete.
However, when the market does turn, a GARP investor is less likely to suffer than the growth investor.
Therefore, the GARP strategy not only fuses growth and value stock-picking criteria, but also experiences a combination of their types of returns: a value investor will do better in bearish conditions; a growth investor will do exceptionally well in a raging bull market; and a GARP investor will be rewarded with more consistent and predictable returns.