Everybody loves a growth story. But that does not make growth by itself a good investment thesis. Fast-growing countries and their companies often produce low returns for investors, and slow-growing ones sometimes produce high returns.

In exploring this apparent paradox, this article argues that valuation plays a critical role. It matters not only how fast a country or company may grow, but also how much investors pay for that growth. Blinded by growth, investors often pay too much to participate in the prospective growth of both countries and companies; and as result, they earn low returns. This tendency to overpay for growth helps explain what the author describes as indisputable evidence that, over the long term, value investing beats growth investing.

This article discusses growth from three different points of view. First, it looks into the relationship between general economic growth and equity returns. Second, it examines the relationship between corporate growth and equity returns. And finally, it compares value investing with growth investing.