The Real Risks in Growth Investing

"Risk is not volatility. Risk is the permanent loss of capital." — Seth Klarman

Many investors treat a falling or jumpy price as "risk". The dangers that actually cause permanent loss in growth investing are different and more specific:

1. Valuation risk — paying a very high multiple for a moderate grower. Even a good business becomes a poor investment at the wrong price.
2. Moat risk — a competitive advantage being eroded by disruption, often quietly, so returns fade before the market notices.
3. Execution risk — management failing to deploy the company's cash well, so growth never translates into value.

Notice what is missing from the list: ordinary price volatility. A wobbly share price is usually noise; it can even be your friend, offering better entry points. Permanent impairment of the business is the real enemy.

Illustrative example: two "growth stocks", different fates

During the early 2020s, two companies were both labelled growth stocks. One had no durable moat, sold discretionary products and carried debt; the other had several reinforcing advantages and a strong balance sheet. The first fell heavily and did not recover; the second weathered the same conditions. The label was the same — the underlying risks were not.