Growth Investing, Growth Investor

Growth investing is a strategy that involves investing in stocks that have above-average growth potential. Such investments are carried out even when the price of such shares appears high in terms of the price-to-earnings orprice-to-book ratios. An investor adopting the growth investing strategy is known as a growth investor.

Growth investing is a strategy that involves investing in stocks that have above-average growth potential. Such investments are carried out even when the price of such shares appears high in terms of the price-to-earnings orprice-to-book ratios. An investor adopting the growth investing strategy is known as a growth investor.

How does Growth Investing Work?

Growth investing strategy is executed in many ways. These include investing in emerging markets, recovery shares, blue chips,Internet and information technology stocks, smaller companies, special situations and second-hand life policies.

The appreciation in the value of growth stocks is fairly rapid and high. For about five years preceding the 2000-2001 dot com bubble burst, growth stocks had performed better than value stocks.

After the end of the dot com era, value stocks have been performing better than growth stocks. This is why a 50:50 investmentstrategy (i.e. ensuring that half the portfolio is created applying the growth investing strategy, while the remaining comprises of value stocks) has been widely advised by analysts.

Growth Investing Strategy: Benefits and Risks

Growth investing is often used by investors for maximizing their capital gains. This has lent the name‘capital growth strategy’ to this investing profile. However, the application of the growth investing strategy may adverselyaffect one’s aim to diversify the investment portfolio. It would be risky to attach a high price to a security in the hope ofbenefiting from its growth. The security price may plummet if the growth rate fails to live up to expectations.

The concept of growth investing may also be understood as the converse of value investing, where investments are made onlywhen the shares are cheap. However, Warren Buffett has been quoted as saying that growth and value investing were joined at thehip. Peter Lynch pioneered the strategy which is a hybrid of these two profiles of investing. This hybrid investing strategy, known as the ‘growth at a reasonable price’ strategy, is both safe and high-yielding.