Given the choice are you a value investing buyer or a growth investing investor. There are slight differences between the two and we thought we would take a look at them today.
With the stock market on the ropes, we thought it would be a great time to analyze different investment techniques. But before we jump into the crux of the matter, let’s look into these two different investment styles.
What is Value Investing?
Value investing stresses buying shares of a company that is lower than its intrinsic value. This is very difficult to place a specific number on either value because there are so many multiples to consider. But for the prudent investor, they have some metrics that are followed to try and make some intelligent decisions in this area. What is intrinsically low to one person, might be high for another and vice versa. This is what makes value investing difficult to do for many. The key is to get some formulas that you are comfortable with, follow the metrics, and when an opportunity strikes, then you pounce on it.
What is Growth Investing?
Growth investing focuses on buying shares of with high growth potential. By this definition, these are companies that have not reached their full potential in their business and by the market’s perception of their either. This can be a difficult way to invest in stocks, but you have to know what you are looking for all the time. Most companies that are growth investing opportunities are start ups or newer companies. This is because potentially their best days are ahead of them and thus, the growth that you are desiring. In the wake of the current economic downfall, many of these potential growth investments could come from companies that were at the height of their business, but have since fallen off and you are looking for them to bounce back in a big way. Either way, you have to be careful when investing your money because there are a lot of businesses that come up short on this delivery.
Value Investing Vs. Growth Investing
Below here we will notice many of the typical characteristics of these two types of investing styles. you may want to learn more about each one, so we linked to the various ratios on the Wikipedia website
Value InvestingLow P/E ratio |
Growth InvestingHigh earnings growth rate |
Low Price/sales ratio |
High sales growth rate |
Low Price-Cashflow |
High return on equity |
Low Price/book ratio |
High profit margin |
High Dividend yield |
No or low Dividend yield |
Overall, when you are investing your money, you have to make decisions based on what makes you the most comfortable. If you are able to analyze and breakdown stocks and their companies, then both of these investing strategies could lead you to the pot of gold that you are looking for in this world. But if you are quick to make hasty decisions, then this world might not be for you because solid decisions are what you need in order to be successful in either value investing or growth investing.
