Investment Strategy: Growth vs Value
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To all of my investors out there, today I would like you to decide on a growth vs value investment strategy. Are you a value or a growth investor? I have been an investor for over twenty years, and trust me I have seen a lot of relevant things. By things, I’m referring to multiple errors done by beginner investors. Not having established core investing principles as a platform is one of them. And not knowing your investment strategy is certainly another. Luckily though, that can easily be avoided. Here's how?
Make a Choice
Each of you make choices everyday. Even not deciding is a choice, a decision made on your part. But we’re not talking about life here. Instead, we’re talking about wealth creation. Before making the jump and investing money into stocks, you have a very important decision to make. Making a firm choice about your investment strategy is akin to creating a business plan for your company. Without it, you won’t be able to navigate the complexity of the financial markets. Without it, it’ll be difficult to invest your money successfully.
Growth vs Value?
To become the best version of yourself, you have to align your investment strategy with your personality. The main difference is that value investors focus on a company's financials and fundamentals, while growth investors focus on a company's growth prospects. Of course, this is a very simplistic distinction, but a more detailed one follows.
- Looks for undervalued stocks with a low P/E ratio and other multiples
- Believes in eventual market recognition and value increase
- Focuses on financials and core fundamentals
- Looks for stable, established companies with solid operating history
- Considered a more conservative and passive approach
- Looks for stocks with high growth potential and strong earnings growth
- Willing to pay a premium, less concerned with current valuation
- Focuses on growth prospects
- Looks for newer, rapidly growing companies
- Considered a more aggressive approach
So based on the above, ask yourself: “Am I conservative or aggressive”? If you’re still with me, then I think this is the next logical question.
Performance: Growth vs Value?
Does Value outperform Growth? It's not necessarily relevant to cite various research articles here since some will favor the Value approach while others will lean toward Growth. And both are valid. Truth be told, you can easily skew the results of such studies. Adjusting the timeline is one of these methods. Using a different approach to calculate returns is another.
According to Forbes, neither approach stands out as the obvious winner over the long-term. Growth stocks tend to outperform during periods of economic favorability while Value comes out on top long-term when investments are made during economic downturns.
Essentially both approaches are fine as long as the one chosen aligns with your personality. However, constantly jumping between the two, can be risky. Choose one or the other. It’s better to be an expert at one investment strategy than to be intermediate at both. When I consider growth vs value, my preference is value investing. And if you’re anything like me, then you’ll love what I have planned for you next week. It’s an article on a ratio that every investor needs to know.
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The information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.