What is 'Growth Investing'
Growth investing is an investment style and investment strategy that is focused on the growth of an investor's capital. Those who follow the growth investing style - growth investors - typically invest in growth stocks or companies whose earnings are expected to grow at an above-average rate compared to its industry or the overall market.
BREAKING DOWN 'Growth Investing'Growth investors often call growth investing a capital growth strategy, since investors seek to maximize their capital gains, although it is often said that growth investing and value investing are diametrically opposed.
Influential People in the Growth Investing Field
Peter Lynch pioneered a hybrid of growth and value investing with what is now commonly referred to as a growth at a reasonable price (GARP) strategy. Another notable name for growth investors is Thomas Rowe Price, Jr. was coined as the father of growth investing because of his vast work in growth investing, as reflected by his company, T. Rowe Price. T. Rowe Price is now a public multinational investment firm. Phil Fisher also created his own name in the growth investing field. His growth investment style was shared in his 1958 book entitled "Common Stocks and Uncommon Profits." This book is still one of the most commonly used growth investing book today.
Growth Investment Vehicles
Investors have many options and ways to execute a strategy that focuses on capital appreciation. These include investing in smaller companies that have high potential for growth, investing in blue chips, investing in emerging markets and purchasing recovery shares.
No Formula in Evaluating a Company's Potential for Growth
Growth investors look at a company's potential for growth and invest in markets that are yet to emerge into the limelight. However, picking assets that may grow requires both objective and subjective interpretations from every individual investor. Investors use different methods and guidelines that allow them to make decisions that best fits their personalities, capital and financial goal. Aside from this, growth investors look at the position of companies in relation to their industry performance and historical financial performance.
Looking for Potential
Growth investors look at five key factors when looking for companies that may provide capital appreciation. Growth investors investigate whether a company has strong historical earnings growth. Aside from this, they also look into a company's forward earnings growth, management's control on costs and revenues, management's way of operating the business, and whether the asset has the potential to double in five years.