Two of the common investing strategies throughout the financial markets is the growth and value strategies. Both strategies have incredibly skilled and successful investors to support and follow their principles. The type of strategy you decide to utilize depends on the types of risk levels you’re comfortable with, the type of agenda you have for the investment, and what you believe in or feel confident in. The strategies or beliefs an investor belief in can vary with each investment and can change as the markets or prices change as well. There is usually a common underlying theme or belief behind an investor and the decisions they make, but there is the possibility that everything changes or they decide to pursue a different route/strategy.

The type of strategy you select or decide to follow for investment depends on the asset you’re investing in. Much of the beliefs that form and go behind both value investing and growth investing, are predicated on the asset you’re investing in. Whether it’s a fast-paced, high growth company like a tech company, or if it’s a strong and steady company making it a value company.

Value Investing

The principles that comprise value investing are often centered around finding undervalued or mispriced assets. Value Investing can be applied to stocks, bonds, real estate, or any other investment type where there are underlying value and a market to price the asset. Finding assets or companies who are undervalued or trading at a relative discount to their true market value are what value investors are looking for.

They’re trying to find companies who have been oversold, possibly a news report came out and might have an impact on their business that scares investors. They’re looking for the company that’s performing well, growing quarter over quarter, but may not be one of the sexy or hot companies or in one of the fan-favorite industries causing a lower than expected increase in price. They also might be looking for a company whose stock price has declined past the point where it should have been, making it an attractive investment being underpriced.

Understanding the correct value for a company in the present moment is one of the foundational elements when it comes to value investing. Having the correct understanding or interpretation for the way a company should be priced, based off the amount of revenue the company is producing, the type of earnings it may generate, and its future outlook can give you a clear picture of where the company stands, and what it’s worth. Then you can compare the price the market has assigned to it, and evaluate whether it’s underpriced and there’s value present, or if it’s overpriced with no value present.

An important thing that comes to mind and in the midst of value investing is the price you invest at or enter is incredibly important. The value investing principles believes in finding investment, security, or asset that’s trading or valued at a discount to its true underlying value. When value investors look to invest or take a position in a company, they often look for one with a level of protection or safety as well. They’re looking to find companies that have high floors, and a strong basis to build off of. That way, they can be protected toward the downside, and have an element of safety in case of a decline. The underlying business model of a company has the ability to provide stability and strength in times of difficulties or declines.

Growth Investing

The principles that comprise growth investing are a bit different than the ones that make up value investing. Both values investing and growth investing has proven to be effective ways to make money and generate profits through investing. The growth investing principles center around finding companies who are going to be able to grow their businesses, increase the number of profits or earnings they can generate, and keep building the business they have.

An element you find many growth investing type companies in is within a fast-paced or rapidly growing or expanding industry. The industries that have the ability to grow tremendously and continue expanding their businesses is one of the areas where growth investors might look. They might believe that where the company is priced today, the type of earnings it has, the type of customers or users it has, and the type of future potential is incredibly higher than where the market has priced it at. They’re looking to find an entry point where down the road when the company has had time to operate, expand, and execute on their business model will look cheap relative to where asset values will be.

Companies or businesses that are looking to grow their businesses or continue their expansions are often looking to break into new markets and create new products or services that can serve more customers. Growth investors are trying to predict which companies will be successful, which companies will be able to find new pockets of growth or revenue, and which companies will be able to continue expanding and growing their businesses from the point they’re at today.

Many of the businesses that fit the mold or the criteria of growth companies are reporting consistent and constant quarter over quarter growth, and year over year growth. The way the market interprets the numbers they report and the sentiment around growth companies sometimes encourage relatively high price to earnings ratios and also higher risk. One of the elements that come with growth investing, is the higher or increased amount of risk that’s usually involved. Now every investment and asset regardless of whether you’re taking a value or a growth strategy comes with a level of risk. Growth companies often come with more risk, but also with more reward. These companies come with more of the future success or profitability built into their prices and more positive sentiment among investors and the investing community driving prices higher and higher.

Conclusion

Value investing and growth investing are two of the oldest and most proven investing strategies there are today. Throughout the economic times, and the growth of the financial markets, both types of investors have been able to succeed and fail as well. The type of investing strategy you believe in and pursue is often a product of who you are, what you’re looking to do, and the type of vision or future you foresee.

Value Investing focuses on finding companies or assets which are underpriced relative to the current market price. Value investors look to find opportunities where companies may have been oversold, underpriced, or misinterpreted. Depending on the company, the industry, and the business, all have effects on the way the market prices the asset, and the type of value it has as well.

The growth investing strategy prides itself on finding companies and businesses who are poised to grow in the future. Whether it’s the amount of revenue they generate, the industries or markets they’re in, or the number of customers they have, growth investing tries to forecast which industries, companies, or assets are poised to grow in the future. Considering the market, they operate in, the forces that may affect their business in the future, and the type of growth they can possibly achieve are a few of the factors that are considered when it comes to practicing a growth investing strategy.

The type of strategy you believe in or practice, whether it be growth, value, or any other is ultimately up to you. To consider the type of variables and economic factors at hand and select the types of companies or investments that you believe in or think will continue to grow in the future.

Over time, the more you’re able to learn more and understand the types of events or movements within a market, you’re able to become a more skilled and educated investor. By learning the fundamentals and understanding how to analyze a company, the way certain events may affect or change a company’s value, and the future outlook company’s or assets may have, you’re able to begin to learn how to become a financial analyst. Learning, analyzing, and evaluating all of these factors can improve the way you invest, the results you have, and the practices you follow. We hope you were able to gain a bit more insight into the value investing strategy versus the growth investing strategy.