Stock Investment: Value Investing Versus Growth Investing

Stock Investment: Value Investing Versus Growth Investing

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Stock Investment: Value Investing Versus Growth Investing

Many opinions have been made about the benefit of the value investing versus growth investing. Proponents of each investment styles insist that their method is better over another.

It is believed that each style of investment has its own advantage. Being a proponent of value investing let me state the case for value investing. First, value investors buy companies in a mature industry. However, it is easier to predict earnings/profits from this business. That is why I opted for the value investing. I am in favor of risk reduction rather than run after the return. Anyone can make an estimate that a small biotechnology company A will rake X amount of profit after several years. But, if your predictions are not accurate, then how can we determine the fair value of common stocks? Your valuation will be unbalanced. A disease comes and goes. Technology fames and disappears. It may defy common sense for some, but I prefer a little or no growth in the industry.

Another advantage of investing in value stocks is that you may get the decent dividend yield from the companies. They are growing less and management feels that they do not need all that profits to finance expansion. Accordingly, they propose the payment of dividends to shareholders. This reduces the risks.

It is also believed that the return of growth stocks will be higher than the value of stocks. No, I do not want you to benefit handsomely buying overpriced stock. You need to buy at a reasonable price. You should not overpay for any stocks, including Growth Stocks. Growth stock is companies that are growing or expected to grow rapidly in future. Is advertising is a growing industry? Yes, but it is not growing. How about pay per search or pay per call advertising? Oh, yes. If you invest in these types of companies you are investing in Growth Stocks. These new forms of advertising are less than 5% of the total advertising budget. Can their share grow? You bet. As television became a part of advertising pie, pay per click advertising will be more than its share if it is profitable for the advertisers to do.

We can say that the value investing takes less return for engaging in little risk. Growth stocks, on the other hand, takes more risks in order to profit a greater return. That is fine. However, there are other types of investment that will burn your pocket. Many investors agree to invest in a style that gets little reward for taking a big risk! Buying a stock at any price is an example. Do not misunderstand buying growth stocks at any price. It is simply ridiculous. There are calculations and forecasts involved in buying a common stock. Determining the fair value and decide if you want to invest on the stock based on the basis of the risk/reward it offers.