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After reading The Neatest Little Guide to Stock Market Investing by Jason Kelly I’ve concluded that the two main types of investing are value investing and growth investing.
While both of these investment strategies are different they can both work well. Growth investors purchase stocks while the companies are experiencing exponential growth. Value investors also choose stocks they hope to rise, but they look for bargain prices while growth investors do not.
So, value investing vs. growth investing, which one is better? Let’s take a further look at the both of them to determine which one is a better fit for you.
Growth Investing – What It Is & How It Works
Growth investing is just how it sounds – investing in stocks that are expected to rapidly grow.
Growth investors look at a companies expected rates of growth along with their sales to choose their stocks. Growth stocks are generally expensive but are expected to increase in value so growth investors don’t mind the price.
A couple examples of growth companies are Google and Chipotle.
To evaluate stocks, growth investors commonly look at a company’s earnings and expect it to have increased each year. They also look at recent stock price strength. Most growth investors also have their own sets of criteria such as how much a stock should grow each year upon choosing their investments.
Investing in growth stocks can be high risk but can yield high returns.
Value Investing – What It Is & How It Works
Just like growth investors, value investors are also looking for companies that are on the rise. The difference, though, is that value investors are looking for bargain stock prices.
Instead of purchasing stocks while they are on the rapid rise value investors look for companies who may have temporarily fell on hard times or who are slowly climbing uphill.
Value investors use several different methods to determine the value of a stock. Some of the common factors that value investors look at are a company’s earnings, assets, sales volume, and cash flow.
Just because value investing entails buying bargain stocks doesn’t mean that your investment is without risk.
Growth Investing vs. Value Investing: Which is Better?
There’s no straight forth answer when it comes to growth investing vs. value investing. Both of these investing strategies comes with their own sets of risks and rewards. You might lean toward one style or another but that will be dependent upon your personality and risk tolerance.
Remember, you don’t have to be a growth investor or a value investor – you’re most likely a combination of the two. Both of these methods have their merits and if you use solid criteria to evaluate your investment purchases either of these methods, or a nice combination of the two will work.