GMO: The Value Versus Growth Dilemma Harvard Case Solution & Analysis


Different investors have different investment styles around the world, therefore, due to this fact investment is the most widely and frequently discussed topic around the world. This case has focused on the two most important investment strategies which are the growth and the value investing strategies. This case also depicts all the issues that have been faced by Dick Mayo while making decisions through his investing strategy. Based on the history and the information provided about the future stocks to invest in it, as it has been analyzed that whether the value investing strategy is better for the investors or not. The current trend in the market was emphasizing more on the growth investing strategies that is the price appreciation strategy which was significantly affecting and making Dick Mayo confused. In the light of both of these investment styles, Mayo and his investment team had analyzed a number of potential stocks like RR Donnelley, CVS and Manor Care. Since, the company has always adopted a value investing style, therefore, it has been analyzed that whether continuation of the same investment style can provide the company with the relative future benefits in the new changing economy or not. This case focuses on both of these investment styles and also highlights the merits, risks and demerits associated with the growth and value investing strategies. It also relates it to the current situation being faced by Dick Mayo regarding the appropriate strategy to be adopted by the company.


The focus of GMO has always been to invest in value stocks and Dick Mayo, who is the portfolio manager of GMO and one of its founding partners, has been facing a very sensitive issue that is of very much concern to the current stockholders of the company. At the same time he is also afraid regarding the trend of the economy which has been arising. The problem was that the company was facing some serious questions regarding the considerations of investment in terms of its value investors and this was due to the emerging popularity of the company’s price increase in investor’s decision making. The main focus of this case lies on the theme that can value investing by being the right strategy when the economy is changing. Also the case focuses on how the investors could be motivated to invest in particular stocks based on the benefits of those stocks about which they could be convinced rather than focusing and responding to the market trends.


Both of these investing techniques have been discussed over the years. However, it is the matter of study over the time which will decide which is the most correct strategy. We first discuss here some of the differences and merits and demerits of both of these investing strategies.

  • Value investing concept focuses on buying those stocks that are undervalued or mispriced in the market but it seems that the company has the potential to turn around its performance which is currently down due to the temporary market inefficiencies.
  • On the other hand, growth investing focuses on investing in those stocks that are performing above the market rates and market trend. However, due to their higher returns these stocks also carry higher risks.
  • In under the value investment style, the investors seek stocks for a sensible price, however, under the growth strategy the investors focus on paying premium prices for the stocks that are growing rapidly and outperforming the market.
  • The investment philosophy of the investors under the value investment is that they buy an undervalued or mispriced stock with an optimistic view, however, under the growth investment strategy companies or individual investors buy stocks at whatever price they can get the stocks and then they sell it for higher prices.
  • The investment risk associated with value investing is that it is very difficult to identify the right market timing i.e. to find the price of the company and also the selling time. However, under growth investing or the future growth does not occur as it is expected by looking at the market trends.......................................

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Dick Mayo, one of the most famous value investor in America was puzzled continuous shift of the new economy to the growth strategy of investment. He explores the foundations of his philosophy, as compared to the growth of its orientation to assess the long-term expected return more value and growth stocks. This case can be used to pursue several goals: (1) determine the value and investment growth - where the differences and whether one approach is superior to the other, or both have merits, and (2) to discuss issues related to the consistency of its investment philosophy. Do I need to stay true to his philosophy, even when the market seems to contradict it for a long period of time? Investing can deliver value in this new economy, or is it just the old concept of the economy? Students are instructed to perform basic assessments of Cisco Systems (growth companies), CVS, RR Donnelley, and Manor Care (firm value) and calculate their long-term expected return. The case comes with tables Excel, containing data and the corresponding estimates for the above ratio of firms. Estimates are simple, but they tell an interesting story: the expected return of glamorous stocks may in fact not be as glamorous.
This Darden study. "Hide
by Giorgos Allayannis, William Burton Source: Darden School of Business 16 pages. Publication Date: August 13, 2001. Prod. #: UV0090-PDF-ENG

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