Growth as the New Value - Ben Graham Turning in His Grave?

Lisa Rapuano of Lane Five Capital is known not just for her years working alongside the legendary Bill Miller, but for being a smart stockpicker in her own right. With a dearth of great female investors out there, I'm rooting for her continued success.

Rapuano spoke at the recent Value Investing Congress in New York. The most interesting part to me is not her stock picks (Overstock and Renault), but several of her ideas which fly in the face of traditional value investing tenets. In particular:

-Margin of safety is overemphasized
-Moats are more fleeting than people believe
-The value of growth is underappreciated
-Envision a base case that is most probably correct, not a conservative scenario
-A portfolio approach is better than an absolute approach

Maybe I'm misinterpreting--and I'll hedge by admitting that I've seen the slides but did not hear the presentation--but it seems to me that Rapuano is arguing that growth can be the best value. This would be consistent with some of Miller's beliefs and his holdings in AMZN and GOOG, and also fits with the presentation's title, "The Many Faces of Value."

There's certainly plenty to discuss here, starting with whether growth versus value is even a meaningful distinction. But if the gist of Rapuano's strategy is to own a portfolio of high growth companies, any of which may falter, but all of which have high, growth-driven expected values based on realistic rather than conservative scenarios, that's certainly different from buying stocks based on a discount to book value or hope for an eventual reversion to the mean of the valuation multiple.

The innovation here is not in Rapuano's "growth rocks!" message, but in the fact that she delivered that message to a gathering of value investors and tried to package it as just another face of value investing. For diehard value heads, that's a real change.

Is Ben Graham turning in his grave, wondering what happened to buying stocks below net current assets? Maybe not. Such opportunities are few and far between, so value investors have to adapt by casting their nets beyond the ponds of statistical cheapness. Learning to appreciate growth and finding methods for intelligently investing in growth, rather than speculating in it, could be a new frontier for value investing.

Graham might quibble with Rapuano over the role of margin of safety, but I'd guess that he wouldn't argue with seeing the value heritage adapt to new realities, while still clinging to its basic beliefs.

I also own several stocks which are ostensibly growth stocks, but still consider them value investments. One technology company I own, as an example, doesn't have earnings and much of upside potential relates to the promise of outstanding sector growth. More than that though, the company has hard to replicate assets, half its market cap in cash, a price/sales ratio well below comps, and is an acquisition target. Whether you call that growth, value, both, or neither is the topic of this discussion.

In sum, no one is saying that all growth is value, but perhaps some of it is. Most growth stocks are certainly a departure from the classic Buffett technique of buying "boring" but predictable businesses. Valuing growth ideas might also require departing from traditional discounted cashflow based methods. But approaching growth from a value framework that insists on understanding the business and paying less than it's worth still seems to me to qualify as intelligent investing.

So maybe there is room at the value table to seat what looks like a growth idea. Unless it's been sitting there all along.