GARP is an evolved version of the value investing strategy that combines within it elements of growth as well. For instance, Warren Buffet, later in his career, expanded the concept of intrinsic value to include intangibles such as brand value, which gave a company its “moat”. In the same vein, GARP relies on fundamental research on companies to identify those with quality business models that allow them to sustainably deliver future earnings growth, whilst being mindful of valuation levels.
In 1972, legendary investor Warren Buffet bought See’s Candies, a Californian manufacturer and distributor of boxed chocolates. This marked a pivotal moment in Mr. Buffet’s investment philosophy. Since striking out on his own in 1955, he had been practicing his mentor Benjamin Graham’s investment approach — value investing. But value investors would likely have baulked at the decision to purchase See’s Candies, which was at the time trading at 3x its net tangible assets.
What had changed? Under the influence of Charlie Munger, his investment partner, Mr. Buffet was no longer occupied with purely cheap valuations based on current tangible assets but expanded the concept of value by considering future value generated by the intangible assets of a business. As far as See’s Candies was concerned, Mr. Buffet foresaw that the business’ powerful brand image would give it a long-term competitive advantage and pricing power to enable it to grow its pre-tax earnings.