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Warren Buffett, Growth Investor?

Buffett and his Berkshire Hathaway break the rules of value investing.

NEW YORK (TheStreet) -- Most people consider Warren Buffett a value investor, but his methods aren't so simple.

His style has evolved over the years and incorporated strategies of growth investing. For this reason -- having taught his principles for 20 years and benefited from them personally, and as author of an exploration of his investing principles called "Buffett Beyond Value" -- I call him a "value + growth" investor rather than a value investor alone.

To earn high returns as Buffett has, an investor needs to go beyond price-to-earnings ratios or other metrics commonly followed by value investors.

If he were simply a value investor, it would be difficult to understand his recent $36 billion acquisition of

Burlington Northern Santa Fe


. The acquisition's price-to-earnings ratio of 18 was high. Earlier large stock purchases in


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American Express

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Wells Fargo

(WFC) - Get Wells Fargo & Company Report

were also not at low multiples. As a matter of fact, most of his buys are at reasonable, not low, valuations.

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Also, following the adage of "buy low, sell high," a value investor would sell investments when the stock price goes up. Buffett holds his investments for a long time.


Berkshire Hathaway


has grown 20% a year -- difficult to accomplish even for most successful growth companies. Buffett clearly invests in common stocks or acquires companies that grow fast. Is he a misunderstood growth investor, then?

Kind of. The most important principle of value investing is to avoid the downside risk, and by investing only in well-established companies, Buffett continues to adhere to this core principle. Beyond that, he is really a growth investor.

Investors don't characterize him as one because he doesn't invest in high-tech companies. This is because he is aware of the downside risk in such investments. The most important aspect of growth investing, on the other hand, is to find companies that will grow for many years to come. His investment style is to find companies that will grow for many years to come (growth investing) with low downside risk (value investing).

Buffett's secret to finding growth companies in traditional industries: people. Buffett looks for managers who have demonstrated outstanding success. On several occasions, he has mentioned that he would not invest in a company unless he admires, trusts and likes its management. And unlike most other acquirers, he does not replace current management. In essence, growth is accomplished through high-quality management and not through high-tech investments.

The main lesson from Buffett that I have learned is that it is possible for an average investor to find simple-to-understand good growth companies such as Wells Fargo and

Wal-Mart Stores

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in traditional industries. Buffett found them and so can you -- by focusing on avoiding the downside risk and searching for high-quality management.

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Prem Jain is the McDonough Professor of Accounting and Finance at Georgetown University's McDonough School of Business in Washington, D.C., and a frequent contributor to accounting and finance journals.