Growth investing
Encyclopedia
Growth investing is a style
of investment
strategy. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share
price appears expensive in terms of metrics such as price-to-earnings
or price-to-book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as value investing
.
However, some notable investors such as Warren Buffett
have stated that there is no theoretical difference between the concepts of value and growth ("Growth and Value Investing are joined at the hip"), in consideration of the concept of an asset's intrinsic value
. In addition, when just investing in one style of stocks, diversification
could be negatively impacted.
Thomas Rowe Price, Jr.
has been called "the father of growth investing".
Investor profile
An investor profile or style defines an individual's preferences in investment decisions, for example:* Short term trading or long term holding * Risk averse or risk tolerant / seeker...
of investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
strategy. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
price appears expensive in terms of metrics such as price-to-earnings
P/E ratio
The P/E ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share...
or price-to-book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
.
However, some notable investors such as Warren Buffett
Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
have stated that there is no theoretical difference between the concepts of value and growth ("Growth and Value Investing are joined at the hip"), in consideration of the concept of an asset's intrinsic value
Intrinsic value (finance)
In finance, intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value...
. In addition, when just investing in one style of stocks, diversification
Diversification (finance)
In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of...
could be negatively impacted.
Thomas Rowe Price, Jr.
Thomas Rowe Price, Jr.
Thomas Rowe Price, Jr. was the founder of T. Rowe Price.Price was born in Linwood, Maryland.Mr. Price first entered the world of Wall Street Investing in the 1920’s. By 1937 he founded his investment firm, T. Rowe Price in Baltimore, Maryland...
has been called "the father of growth investing".
Growth at reasonable price
After the bursting of the dotcom bubble, "growth at any price" has fallen from favour. Attaching a high price to a security in the hope of high growth may be risky, since if the growth rate fails to live up to expectations, the price of the security can plummet. It is often more fashionable now to seek out stocks with high growth rates that are trading at reasonable valuations.Growth investment vehicles
There are many ways to execute a growth investment strategy. Some of these include:- Emerging markets
- Recovery shares
- Blue chips
- Internet and technology stock
- Smaller companies
- Special situations
- Second-hand life policies
See also
- Value investingValue investingValue investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
- Quality investingQuality investingQuality investing is an investment strategy based on clearly defined fundamental factors that seeks to identify companies with outstanding quality characteristics. The quality assessment is made based on soft and hard criteria...
- Philip Arthur FisherPhilip Arthur FisherPhilip Arthur Fisher was an American stock investor best known as the author of Common Stocks and Uncommon Profits, a guide to investing that has remained in print ever since it was first published in 1958. Fisher studied business at Stanford University...
and Kenneth L. Fisher - David DoddDavid DoddDavid LeFevre Dodd was an American educator, financial analyst, author, economist, professional investor, and in his student years, a of, and as a postgraduate, close colleague of Benjamin Graham at Columbia Business School.The Wall Street Crash of 1929 almost wiped out Graham, who had started...
- Warren BuffettWarren BuffettWarren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
- Growth stockGrowth stockIn finance, a growth stock is a stockof a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry...
- Growth Investment ManagersGrowth Investment ManagersThis is a list of investment management firms that have Growth as their primary investment style, sorted by geographic region.-US and Canada :*GBC Asset Management-See also:* Value investing* Quality investing* Philip Arthur Fisher and Kenneth L. Fisher...
- Magic Formula InvestingMagic Formula InvestingMagic Formula Investing is a term that refers to an investment technique outlined by Joel Greenblatt that uses the principles of value investing.-Methodology:...