Growth Stock Investing

Growth stock investing. How it works and whether you should adopt this investing strategy.

Investing for Growth

What is growth investing? Growth investing means to invest in high growth industries such as biotechnology and dot coms back in 1999. Growth investors bet on the stock’s strong future returns, and are willing to pay more than what the stocks are really worth based on today’s returns. This can easily create speculative bubbles – the most famous recent growth investing bubble was the one that burst in March 2000.

Investing in growth stocks also means foregoing the dividend yields that traditional stalwarts would offer. This is because growth stocks are also usually small to medium cap stocks – while Microsoft might have been an excellent growth stock pick back then, it has now reached the maturing stage where it would be difficult to double its value in one year.

Sometimes, growth investors also look to traditional industries if they predict a possible major change in trend or change in consumer tastes.

Value vs Growth Investing

Value investing means to invest based only on the actual value of the company today. The company must have strong assets, low debt, strong earnings, strong cash flow and a stable, established market position.

What is Value Investing

Value investors such as Warren Buffett pay careful attention to the times when stocks are underpriced. These are the times when the market prices the stock below what it is actually worth, actually due to short term fluctuations. They look for competitive barriers that build a strong moat for the company; these include intellectual property rights, strong brands, and so on.