Investing in value versus investing in growth
If value investing doesn’t suit your particular investing style, you may want to consider growth investing. When investing in growth, there is more focus on the prospects for significant growth in revenue and net income of the business over time, with a focus on the fastest growing companies in the market.
Growth investors don’t care as much about intrinsic value. Instead, they expect extraordinary business growth and invest in trending companies that have shown recent growth.
How growth and value investing overlap
Each school has devoted followers, but there’s a lot of overlap. Depending on the criteria used for selection, you’ll see stocks that are included in both value and growth mutual funds. What gives?
In part, it’s much ado about a distinction that’s not set in stone. For example, a stock can evolve over its lifetime from value to growth, or vice versa.
It’s also worth noting that investors in the value versus growth debate have the same goal (buy low and sell high); they’re just going about it in different ways.
Value investors look for companies that have already earned their stripes and have a stock price that’s lower than it should be (and may rise again to reflect that). Growth investors look for companies with future potential and expect the stock price to increase (even if it’s already relatively high) as the companies reach or exceed that potential. Same desired destination, different ways of getting there.