Growth v. Value Investing
The concept of growth v. value investing comes up frequently in discussing stock market investing.You should know the difference so you can determine what type of investor you lean towards. Growth investors are focused on, not surprisingly, companies that are going to grow into the future. They are willing to pay more for a stock now, in terms of its technical analysis (ie. Part One and Part Two), on the basis that it exhibits signs of above-average growth. Most often, these types of growth companies are going to be smaller, more volatile or “risky” stocks. This makes sense as they are companies in the midst of growing and becoming a larger, more stable company in the future.
Value investors are looking for underpriced stocks or more to the point, value for money. These are stocks that may have high dividend yields, low P/E ratios or low P/B ratios (again see Part One and Part Two for more on the meaning of these ratios). The most famous value investor you may have heard of is Warren Buffett (I will do a later post profiling many famous investment personalities) and he is a proponent of this type of investing. Value investing is about finding a great company at a reasonable price (not so much buying a generic company at a bargain basement price which could also be said to be value for some!).Value investors do not want to overpay for the stock. This contrasts with growth investors who are willing to buy a stock at a higher price on the basis or hope that it will go even higher as the company grows into a larger company.
Based on the above, how is your investing personality best described? Leave your answer in the comments!