Investing for Growth

Growth investors are using todays information to identify tomorrows strongest stocks. Theyre looking for winners stocks of companies within industries that are expected to experience substantial growth. They seek companies in a position to generate revenues or earnings greater than what the market expects. !hen growth investors find a promising stock" they buy it" even if it has already experienced rapid price appreciation" in the hope that its price will continue to rise as the company grows and attracts more investors. Fast Fact: !ords on Growth. #t seldom pays to invest in laggard stocks" even if they look tantali$ingly cheap. %ook for" and confine your purchases to" market leaders. &!illiam '. ()eil" noted growth investor !here value investors use analysis" growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrows leaders* they are they are less focused on the value of the underlying company. +or example" growth investors may favor companies with a sustainable competitive advantage" that are expected to experience rapid revenue growth" that are effective at containing cost" and that have an experienced management team in place. ,alue and growth investing are opposing strategies. - stock pri$ed by a value investor might be considered worthless by a growth investor and vice versa. !hich is right. - close review of your personal situation can help determine which strategy may be right for you - growth stock is a company whose shares are expected to grow faster than the overall market average. )ormally" these stocks don/t pay dividends because they are in an emerging sector and prefer to reinvest to keep the company growing. #n theory" this reinvestment keeps the company/s growth stimulated so shares of the stock grow in value exponentially. !hile there/s no guarantee on how long or even if growth can be sustained" the appeal of such stocks is obvious. 0ead more1 The -dvantages of #nvesting in a Growth 2tock 3 e4ow.com http155www.ehow.com5list6789:;:86advantages investing growth stock.html<ix$$9=fg+>hid

rowth investing can provide investors with a number of uni?ue benefits and solid returns. 4owever" there are several disadvantages that you will need to know about before getting involved with growth investing. 4ere are some of the disadvantages of growth investing. -ds by Google @ick The !inning 2tocks -stro Aconomics )ewsletter 2pecial (ffer www.astroeconomics. com The +uture of +uel Bellulosic Athanol" Ciodiesel" 0enewable Bhemicals" Ciorefining www.lignol.ca 1. High Volatility (ne of the biggest advantages of this type of investment is that it has extremely high volatility. Dost companies that appear poised for growth could also lose a substantial amount of value ?uickly. !hen examining these companies" you will find that they have a high price earnings ratio. -s an investor" you have to have a high tolerance for risk and understand that the value of your stock could decrease suddenly based on nothing more than market sentiment. This is not an investment for the faint of heart. 2. Substantial Research -nother potential problem with growth investing is that you have to do a substantial amount of research about stocks before you can invest in them. #f you can accurately identify a company that is poised for growth" you could bring in a great return. 4owever" identifying the profitable companies is easier said than done. #n order to do this" you are going to have to do a substantial amount of research and have a good understanding of how to use valuation multiples. There are some indicators that you can use in order to identify patterns of growth in a company. This is going to re?uire you to learn how to do this type of research and how to perform the right calculations. Dany people think that they are doing an ade?uate amount of research when they are really fooling themselves. 3. ong !er" -nother disadvantage of this type of investment strategy is that it is definitely a long term strategy. #f you are the type of investor who likes to reali$e immediate profits and to day trade" this is not going to be the strategy for you. #n order to truly reali$e a good profit from a growth stock" you are going to have to be prepared to hang onto it for the long term. #n most cases" experts recommend that you keep growth stocks for least five years before selling them. #f you do not" you might time the market wrong and find out that you sold at the wrong time. #. $hoosing the %rong $o"&any

-nother problem that comes up with this type of investing is when you choose the wrong company to invest in. Eou might think that a company is poised for growth when really they are about to be run into the ground. The problem arises when the price of the stock starts to fall. Eou might think that since this is a growth stock" you should simply hang onto it for the next five years before selling. The problem is that it can be difficult to differentiate between a company that is going out of business and a growth company that is Fust extremely volatile. 0ead more1 http155www.finweb.com5investing5G disadvantages of growth investing.html<ix$$9=fiAHI4>

,alue vs Growth #nvesting & !hich 2tyle 2uits Eou. Cy Arnest %im in2hare

Dost of you would have noticed that these words value and growth appear fre?uently in fund factsheets or through experts lips. !hat do they mean. !hat are the pros and cons of each method. !hich one is superior. #n this article" # will clarify some doubts which readers may have on these ubi?uitous terms. %hat is value investing' ,alue investing is the method of buying e?uities trading at a substantial discount to their intrinsic value. This is based on a premise that markets have currently mispriced the e?uities but will recogni$e its true worth over time. $haracteristics of e(uities which woul) be selecte) un)er value investing

(ut of favour or boring e?uities e.g. fibre companies* A?uities which may have some bad news* Bheap valuations such as low price to book value* low price earnings multiples J@AK etc* 4igh dividend yields* and Dainly big companies growing at unexciting levels

*n) growth investing' Growth investing is the method of buying e?uities which are growing at above average growth rates. 4owever" these e?uities may seem over priced based on current valuation metrics such as @A ratio but this over priced phenomenon decreases rapidly over time as earnings growth catch up with the price. -n example is given below for illustration. !able 1: $o"&arison of co"&anies * + , with )ifferent growth rates

2ource1 Arnest The prices for Bompanies - and C are 2LG: and 2L8M respectively at Eear :. Bompany - is growing at M:N in earnings per year whereas Bompany C is growing at 8:N in earnings per year. -t year :" Bompany C trades at a @A of 8Mx whereas Bompany - trades at a lofty G:x. +rom year G onwards" Bompany - is consistently cheaper than Bompany C based on @A alone. 4owever" it is noteworthy to readers that by buying into Bompany -" readers are accepting an implicit assumption that Bompany - continues to grow at the astronomical rate of M:N in earnings per year" at least till Eear G Jso that it is cheaper than Bompany CK. #f Bompany -s growth rate falters and achieves only 8MN from Eear 9 onwards" ceteris paribus" it will only become cheaper than Bompany C from Eear 8O onwards. $haracteristics of e(uities which woul) be selecte) un)er growth investing

Typically" small cap e?uities which have certain new products to be introduced to the market and are highly expected to contribute significantly to the firms* %ow or no dividend yields as these companies are utili$ing their funds for expansion* -bove average valuations such as high price to book value* high price earnings multiples etc* and #ncreasing recognition on the growth potential of the e?uities due mainly to buildup or new research reports.

Cased on the analysis above" it should be apparent that both approaches have their pros and cons. These would be explained in !ables 2 an) 3 below.

!able 2: *)vantages an) )isa)vantages of value investing

Advantages of growth investing Potential to realize substantial returns in A shorter time span value investing Potential to generate good income stream Disadvantages of growth investing Market downturns usually affect growth stocks more than value stocks High expectation built into the companies

he prices for Bompanies - and C are 2LG: and 2L8M respectively at Eear :. Bompany - is growing at M:N in earnings per year whereas Bompany C is growing at 8:N in earnings per year. -t year :" Bompany C trades at a @A of 8Mx whereas Bompany - trades at a lofty G:x. +rom year G onwards" Bompany - is consistently cheaper than Bompany C based on @A alone.

4owever" it is noteworthy to readers that by buying into Bompany -" readers are accepting an implicit assumption that Bompany - continues to grow at the astronomical rate of M:N in earnings per year" at least till Eear G Jso that it is cheaper than Bompany CK. #f Bompany -s growth rate falters and achieves only 8MN from Eear 9 onwards" ceteris paribus" it will only become cheaper than Bompany C from Eear 8O onwards. $haracteristics of e(uities which woul) be selecte) un)er growth investing

Typically" small cap e?uities which have certain new products to be introduced to the market and are highly expected to contribute significantly to the firms* %ow or no dividend yields as these companies are utili$ing their funds for expansion* -bove average valuations such as high price to book value* high price earning multiples etc* and #ncreasing recognition on the growth potential of the e?uities due mainly to hype or new research reports.

Cased on the analysis above" it should be apparent that both approaches have their pros and cons. These would be explained in !ables 2 an) 3 below. !able 2: *)vantages an) )isa)vantages of value investing

2ource1 Arnest 0educes probability of a large loss by purchasing e?uities with a high margin of safety Bheap shares Jtrading at less than intrinsic valueK can get cheaper and cheaper in a downtrend 0eturns may be lower than growth investing on an annuali$ed basis.

!able 3: *)vantages an) )isa)vantages of growth investing

2ource1 Arnest $onclusion - ,est of both worl)s Cased on the !ables 2 an) 3" it is apparent that both approaches have their pros and cons. #n my opinion" # would blend both approaches together to pick stocks which offer both growth and value aspects. +or example" based on Cloomberg estimates" 2inotel trades at around M.Gx +E:;+ earnings vis P vis 9:.Mx +E:;+ peers earnings. 2inotel earnings growth rate is estimated to be in the high teens at least for +E:;+ and +E8:+. Thus" stocks such as 2inotel offer both growth and value aspects. Dy suggestion for readers is to combine the approaches together and pick stocks which offer both value and growth perspective. -s !arren Cuffett once said" Growth and ,alue #nvesting are Foined at the hip. Thus" we should utili$e and blend the approaches together" in order to obtain the maximum benefits.

Advantages of growth investing Potential to realize large returns in a shorter time period than value investing Potential to generate good income stream

Disadvantages of growth investing Market downturns usually affect growth stocks more than value stocks

High expectation built into the companies