The strategy that can turn $10,000 to $102,000 in two decades

Amidst today’s stretched valuations and heightened uncertainty, investors are exploring strategies that strike a balance between growth and risk. One such strategy, known as GARP—Growth at a Reasonable Price—has resurfaced. Peter Lynch popularised GARP by using PEG ratios (a firm’s price-to-earnings ratio divided by its growth rate) to uncover companies with strong growth potential that were not overvalued.

A recent article written by Lucy Dean for The Australian Financial Review provides an in-depth look at GARP’s resurgence amid concerns that the market is overvalued. While GARP strategies have the potential to offer higher returns than a value strategy without taking on as much risk as a growth strategy, Hugh Selby-Smith, Co-CIO of Talaria Capital, notes the potential drawbacks of GARP, cautioning that it may limit exposure to the full benefits of either pure growth or value strategies. For the average investor, identifying GARP stocks on their own may be tricky, and they could run the risk of over-complicating their own strategies.

Rather than adopting GARP, Selby-Smith advocates for a diversified approach, referencing Harry Markowitz’s concept of uncorrelated returns. “Rather than one instrument, investors would be better off building up a range of different investments that can perform in different environments.” he adds.

To explore this perspective and others on the potential of GARP for investors, read the full article in the Australian Financial Review