Growth vs Value Investing

Growth vs. Value Investors

There is a large difference between the growth and the value investor; however, many times the same measures are used by both parties to define a stock. The growth investor is not looking for the underpriced stock that will make a run towards its intrinsic value; rather, they are looking to buy high and sell higher. These investors attempt to find stocks that have large sales gains year over year which is correlated to earnings gains, and therefore, capital gains for the investor. The toughest part of investing in growth stocks is not to find the stock that has good margins and strong earnings; it is to find the stock that can keep these gains for a longer term than its competition. In order to do this, I believe the investor must look past the numbers (while taking a glimpse) and into the company’s management. In order for a stock to continue strong growth for more than four years, the average time a company’s stock remains a growth stock (Nordby 4); the company’s management must not sit idle while the stock grows and the paychecks come in. The best growth companies to date (i.e. Microsoft, Coca Cola, etc.) have had active management that incorporated new business models and initiative as the company grew. The key here is that action was taken AS the company was growing as opposed to AFTER the company had peaked. If the company continues to be innovative and take more of the market share through new or unique products, the stock will continue to thrive as a growth stock and the smart investor will reap the rewards.

Value investors attempt to determine the intrinsic value, or long-term true net worth, of a stock by studying the long-term historical fundamentals of stocks and observe how they have traded in the past relative to the market in order to predict how they will behave in the future (Shannon 13). While growth investors look to capitalize on the fact that the market overdoes things on the downside and upside (Nordby 8), value...