Last time in this blog, we discussed value investing, which is essentially the strategy of finding a company that looks to have good prospects but is undervalued by other onlookers who are playing the market. One then buys stock in that company while it’s at a low price, and then enjoys the returns when their prediction pays off and the company’s value increases despite prevalent opinion to the contrary.
Growth Investing
Today, however, we’ll be looking at a competing strategy that has enjoyed just as much success and notoriety over the years: growth investing. Whereas value investors look at the present state of a company in order to forecast the wisdom in investing in them, a growth investor more or less ignore that in favour of attempting to assess a company’s future growth potential, regardless of its current price. In other words, while a value investor would ignore a high priced stock, regardless of the company behind it, a growth investor would not. He or she would look at the factors that would let them realize that that high priced stock is about to become a super-high priced stock, meaning they’ll be making just as much of a profit as the value investor would have in his or her value priced stocks.
Sudden explosive growth
Since a growth investor relies heavily on companies that experience sudden explosive growth, it makes sense that they would look to the two arenas that see that kind of activity most often: new businesses, and businesses in industries related to new technologies. There’s no hard and fast formula for determining whether or not a company that matches this criteria will actually experience the explosive growth that growth investors are hoping for, but by looking at certain matters of fundamental analysis such as whether or not the company has grown in the past, and matters of qualitative analysis such as how their current position in the market is looking, one can put together a reasonable assessment of a company’s potential future growth.
Risk levels for the investor
There is some sense in which growth investing is said to be riskier than value investing. While this may be so, it’s certainly a strategy that has met with a lot of success over the years, and continues to do so for those who know how to wisely employ it.
Join us next time as we look at more time-tested strategies for choosing the right stocks, at the right time.
See you next week for part 5 of Stock Picking Strategies.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 2 comments… read them below or add one }
Hmm…. Growth Investing + Value Investing . I can see a bit of a plan surfacing here.
Hi Sean,
Growth investing seems riskier to me but again, I don’t know a lot. I’d think that companies that invent things would be great to invest in. Imagine if you’d invested in the company that made the Cochlear ear implant before they made it.
It would be worth a fortune. I think. I guess you’d have to have a good nose for which things would pay off.