As investors, always remember that you need the right way to invest in the stock market to gain a significant amount of money. In comparing the available strategies you really need to research thoroughly the risks and differences of each approach. Here is the comparison between growth and value investing.
The growth and value stock investing are the two essential approaches in stock investing since both of them provide the best possible returns.
Growth Investing
Growth investors usually commit their portfolio into a long term investment. They will not give a fast return, but they will give a higher return in the future. The amount of the return they gave makes this investment is worth the wait.
Growth stocks come from companies that have strong momentum. They use all of their profit to expand their goods and services to dominate the market and gain significantly more profit in the long future. Investors who buy these stocks expect them to steadily grow and increase their profit.
Amazon and Netflix are the two easiest example of growth stocks. They prioritize developing their technology and expanding their infrastructure over profit in their early days. Now, we can see them dominate the market.
After they reached their success, the shareholders can enjoy the value of their rising shares. Their high price-to-earnings ratio and price-to-book ratio also show these companies’ ability to keep existing in the market while increasing their profits at the same time.
Yet, growth stock also possesses some risks. If there is still a probability of the stock price to dramatically drop. The possible reason for that is two. It can happen due to negative earnings or bad news about the company.
Thus, growth investing does not directly put you away from risks.
Value Investing
Value investing involves companies stocks that do not represent the company value. This approach requires investors to find stocks that are undervalued by the market but still have a high probability to rise up.
The value stocks are those with higher company intrinsic value than their market value. So, to find these stocks, investors have to dive deep into companies’ management, financial statement, business model, and competitive situation.
You have to also remember that these types of stocks are more volatile than growth stocks.
