What is Right For you Value Investing or Growth Investing?
I know you want to generate capital gains in the stock market. You need to use a strategy that fits the current market environment and your own personality to do that.
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
Growth investors base their investment decisions on a study of the earnings of a company, but completely disregard valuations. They don't care if a stock is highly valued, only that earnings are growing quickly. William O'Neill is the most popular proponent of growth investing. He looks for companies whose quarterly earnings are up at least 20% from a year ago, whose annual compounded earnings per share should be between at least 15% for the past five years, and who have a new product or service that will help it capture market share. Although O'Neill then takes into consideration how strong the stock is when compared to the rest of the market and the general phase of the market, most pure growth stock investors do not worry about the position of the market or the stock itself.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Most growth stocks go up a lot, because people like to bet they keep going up. It is a big momentum play. But when bad news hits then the momentum can switch and go to the downside. So to play growth stocks you have to know what you are doing when it comes to trading and putting in your buy and sell orders.
Value investing is the other way investors make money in the stock market. Warren Buffet is the most well known value investor. Value investors like buying stocks in companies that have big book value, pay out dividends, and do not have much debt on their balance sheet. In the best cases they can find a stock that is actually priced lower than the company itself, meaning the company could be sold for more than it stock price say it is worth. It is a bargain.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
When you buy really cheap though sometimes it can take a long time before the stock goes up since investors can stay scared for a long time. It takes times in bear markets for the stock to go up too. So you have to be patient sometimes to be a value investor.
You need to know that it is the growth stocks that go up the most in bull markets, but they fall the most in bear markets too. It is the value investor who knows when to get in cheap and sell high. You have to figure out which strategy you like the most. I combine them both and talk about both. - 23226
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
Growth investors base their investment decisions on a study of the earnings of a company, but completely disregard valuations. They don't care if a stock is highly valued, only that earnings are growing quickly. William O'Neill is the most popular proponent of growth investing. He looks for companies whose quarterly earnings are up at least 20% from a year ago, whose annual compounded earnings per share should be between at least 15% for the past five years, and who have a new product or service that will help it capture market share. Although O'Neill then takes into consideration how strong the stock is when compared to the rest of the market and the general phase of the market, most pure growth stock investors do not worry about the position of the market or the stock itself.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
At some point this is going to happen, because nothing goes up forever, not even a rocket ship. The big companies we all know about all grew fast when they started out, but most don't grow as fast anymore so they are no longer growth stocks. Think about GE for example.
Most growth stocks go up a lot, because people like to bet they keep going up. It is a big momentum play. But when bad news hits then the momentum can switch and go to the downside. So to play growth stocks you have to know what you are doing when it comes to trading and putting in your buy and sell orders.
Value investing is the other way investors make money in the stock market. Warren Buffet is the most well known value investor. Value investors like buying stocks in companies that have big book value, pay out dividends, and do not have much debt on their balance sheet. In the best cases they can find a stock that is actually priced lower than the company itself, meaning the company could be sold for more than it stock price say it is worth. It is a bargain.
In a bear market or a big stock market correction you can find bargains and that is when it is time to think about being a Warren Buffett. It happens all of the time. Investors always get scared from time to time and sell stocks at a stupid price. That is when you can buy.
When you buy really cheap though sometimes it can take a long time before the stock goes up since investors can stay scared for a long time. It takes times in bear markets for the stock to go up too. So you have to be patient sometimes to be a value investor.
You need to know that it is the growth stocks that go up the most in bull markets, but they fall the most in bear markets too. It is the value investor who knows when to get in cheap and sell high. You have to figure out which strategy you like the most. I combine them both and talk about both. - 23226
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posted by X - Men @ 3:07 AM
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