Growth gets treated as a virtue in itself. A company opens new stores, buys a rival, enters a new country, and the market claps: more revenue, bigger company, surely a better stock. But Bruce Greenwald, the Columbia professor who turned Graham’s value investing into a modern discipline, spent a career showing that this instinct is half wrong. Growth is only good under one condition. Outside that condition it does nothing, and inside the wrong condition it destroys value while looking, on the income statement, like success. If you already know what an economic moatis, this is the next thing to understand: a moat doesn’t just protect today’s profits, it decides whether tomorrow’s growth is worth anything at all.
The math nobody wants to hear
Start with the term that does the work here: franchise value(Greenwald’s name for the extra worth a business has purely because barriers to entry let it earn more than its competitors can). A company with no franchise is worth what its assets cost to rebuild. A company with a franchise is worth more, and the gap between the two is the dollar value of its moat. That gap is the whole game, because it tells you something growth alone never does.
Here is the mechanism, and it is just arithmetic. Growth costs money — new stores need inventory, new factories need capital, new customers need working capital to serve. Call the price of that money the cost of capital, and call what the new money earns the return on capital. Greenwald’s claim, in his own framing, is blunt: as long as the return on capital and the cost of capital are the same, growth never, no matter how fast, adds a cent of value. In a market with no barriers, competition drags the return down to exactly the cost of capital. You spend a dollar to earn a dollar’s worth of cost back. The revenue line climbs and the owner is no richer. That is growth as a treadmill: motion without distance.
The worse case is sharper. When a company with a real franchise in its home market pushes growth into territory where it has no moat, the new capital earns less than it costs. Now every dollar of expansion is a dollar of destruction, paid for with earnings that could have been handed back to shareholders instead. The company gets bigger and the owner gets poorer. The market, watching only revenue, often cheers the whole way down.
Two expansions, two endings
Walmart is the version that works. It grew outward in concentric circles from its Arkansas base, each new store placed at the edge of the territory its distribution network already covered. Because every new store sat close to an existing warehouse, it inherited the company’s cost advantage on day one — the same trucking density, the same logistics. The growth rode the moat instead of leaving it. Each store earned well above the cost of building it, because each store was, in effect, an extension of an advantage rivals couldn’t match. That is what value-creating growth looks like: expansion that carries the franchise with it.
General Electric under Jeff Immelt is the version that doesn’t. GE pushed growth through acquisition into businesses where its industrial heritage bought it no structural edge — finance, media, a costly late bet on power. The deals made the company larger and the headlines busier. They did not make it more defensible, because none of the new arenas shared GE’s old moat. Over Immelt’s roughly sixteen years to 2017, the stock fell about 30% while the S&P 500 rose more than 120%, and the company shed well over $150 billion in market value (Fortune’s 2017 tally). The revenue had grown for stretches of that. The value had not. Empire-building and value-building turned out to be different activities wearing the same suit.
The honest caveat: one company is not a law, and plenty of things sank GE besides bad expansion. But the pattern repeats across Greenwald’s case files — Kodak diluting a film franchise into moatless digital, Kmart scattering stores with no density to defend them — often enough that the mechanism, not the anecdote, is the point. Capital deployed outside a moat reverts to earning its cost. That is the base rate, and a growth story is the exception that has to prove itself against it.
Why the Growth rank only counts with a moat
This is exactly why we never read a Growth rank on its own. On Obermatt, Growth is one of four peer-relative ranks (a score from 1 to 100 measuring how fast a company is expanding revenue, profit, capital and shareholder return against its true peers, not against the whole market). A high Growth rank tells you the treadmill is moving fast. It does not tell you the company is going anywhere. For that you read it beside the Safety and Valueranks, and against the moat itself — because growth is only a buy signal when there’s a franchise underneath it converting that growth into value instead of burning capital to produce it.
The peer-relative part matters more than it looks. Absolute growth flatters everyone in a hot industry: when a whole sector is expanding, even the moatless players post big numbers, and the income statement can’t tell you which growth is real. Ranking a company against its direct competitors strips that out. If a business grows faster than the rivals fighting over the same customers and the same capital, something is letting it pull ahead — and a durable something is what a moat is. Peer-relative growth is the more honest measure precisely because it asks whether the company is outrunning its peers, not just riding the same tide they all are.
So the principle is narrow and worth keeping: growth is not a virtue, it is a multiplier — it magnifies a moat and it magnifies a mistake. The concrete action follows. Before you reward a company for expanding, find the franchise the expansion is supposed to ride on. If you can name the moat and the growth is extending it, lean in. If the growth is marching into open ground where anyone can follow, treat the rising revenue not as proof of strength but as a bill the owners are quietly paying.