Growth Investment Strategy
Investing under this approach involves choosing those stocks that demonstrate better than average earning gains in the recent years and are expected to deliver the same high level of profit growth to the investors. However, there are no guarantees to the same. This is because even though they have the potential for a high earning growth, they have no established history to back up their claim of strong earnings. Some of the main characteristics of the funds under this strategy are as follows:
- Higher pricing than the broader market: Because of the growth expectations associated with these funds, Investors are more than willing to pay a higher price to earning multiple so as to sell them at a later date.
- High earning record of growth: Even though some companies experience depressed earnings during economic slowdown, growth companies continually achieve high growth in their earnings regardless of the adverse economic conditions.
- More volatility than the broader market: One of the major risks associated with buying a growth oriented stock is the higher volatility associated with the same. The lofty price of the stock can fall sharply on any negative news especially if the earnings fail to match up the expectations.
Value Investment Strategy
Value Investment strategy is based on buying of those stocks that have fallen out of the public favor but have good fundamentals to back them up. It also includes many new companies too that have not been identified by the new investors. Some of the key characteristics of this approach are as follows:
- Lower Priced: One of the major ideas behind these stocks is that they are priced lower than the broader market. It is based on the belief that these companies are sure to bounce back once their true value is recognized by the investors.
- Priced below their peers: Many Value investors are of the opinion that these value stocks are created due to the overreaction caused by some company problems among the investors. This may include disappointing earnings, legal problems or negative publicity. All of these often raise doubts in many investors’ minds thus dragging their price down in the stock market.
- Lesser risk: Since these stocks take some time to turn things around, they are more suitable for long term investors. However, the risk associated with price fluctuations is sometimes more than the growth stocks too.
Which approach to choose?
The battle between the growth and value investors has been going on since many years and is unlikely to end soon. Each side has its own arguments to support their cause. The best approach in such a case is to follow a combination of both growth and value, thus smoothing out any losses or gains incurred over time. If you are looking for expert insight into the best investment strategy for your funds, contact our financial experts today.
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