Stock investing strategies – Growth Stock Investing
Generally speaking, a strategy employed by an investor selecting stocks with above average growth potential is considered growth stock investing. These targeted stocks are corporate assets whose quarterly earnings are anticipated to grow relatively quickly in comparison to the overall market within its particular industry.
Often termed as capital growth strategy by growth investors, maximizing capital gains is the overall goal. Though many say growth investing is diametrically opposed to value investing, it\’s more appropriate to accept the two strategies in light of a Warren Buffet quote, where he talked about growth as well as value investing being tightly joined. Similarly, another investing mogul by the name of Peter Lynch is credited with first implementing an intermediate approach between the two, commonly spoken of as the GARP strategy, or growth at reasonable prices.
By the end of the 1990\’s, during the big tech stock boom, those employing growth investing tactics yielded extraordinary returns for investors. It should be noted, however, that growth stock investing has some substantial risks. This method is not for the faint of heart, and it\’s potential gains and losses should be well understood prior to making any such leap.
Perhaps the easiest way to illustrate exactly what growth investing is is to show what it isn’t as compared to it\’s counterpart, value investing. The value investor takes into account current expectations. Those stocks trading below their perceived value are considered value purchases, on the speculation they will return to their true value in the short term. In contrast, growth investors buy shares of companies that are expected to balloon from their current value over a considerably greater length of time, with little concern of the stock\’s current pricing. In this type of trading, buying at levels above the perceived worth of the stock can and does occur. The strategy is reliant on the potential for overall growth of that company in the future.
Those stock\’s that are considered growth stocks are shares of companies speculated to grow relatively quicker than other similar interests. It stands to reason that younger companies are of a higher interest to growth investors. This takes into consideration the theory that earnings and revenue growth will translate directly to an increased share price for the stock. Those industries expected to increase rapidly in their asset value are good candidates, most especially ones leading in new technologies. Capital gains are the means to realizing profits here, not dividends, as more often than not these types of ventures are prone to earnings reinvestment leaving very little for dividend pay-outs.
A major player in teaching and utilizing growth stock investing strategies is The National Assn of Investors Corp., or NAIC. They have a five point checklist to assess growth stock candidacy. All five requirements should be met to consider the stock a prime option. These are the five points in paraphrase:
*Does the stock historically show strong earnings?
*Is strong growth expected going forward?
*Is the management of the company effective in controlling revenues and costs?
*Does the management show signs of continual improvement and innovation?
*Does it seem likely that the price of stock can double within the next five years?
Following these guidelines, and an affirmative answer to all of them, will provide a stock that is likely a good candidate for growth stock investing.
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