Loading the player...

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.

RELATED TERMS
  1. Growth Rates

    Growth rates are the percentage change of a specific variable ...
  2. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  3. Style Analysis

    The process of determining what type of investment behavior an ...
  4. Investment Product

    An investment product is a product offered to investors based ...
  5. Earning Potential

    Earning potential refers to the possible earnings per share gains ...
  6. Balanced Investment Strategy

    A balanced investment strategy is a method of portfolio allocation ...
Related Articles
  1. Investing

    5 Characteristics of Good Growth Stocks

    Growth stocks can give investors good returns, but not all growth stocks are the same. From leadership to growth, there are traits good growth stocks share.
  2. Investing

    4 Investment Strategies To Learn Before Trading

    The best thing about investing strategies is they’re flexible.
  3. Investing

    Is Growth Always A Good Thing?

    Getting big quickly looks good, but companies can get into trouble when they do it too fast. Find out how to spot this trouble.
  4. Investing

    7 Simple Strategies for Growing Your Portfolio

    There are many ways to grow the value of a portfolio. These seven tried-and-true methods to increase returns have been used by investors of all stripes.
  5. Investing

    4 Tips to Evaluate Growth Companies (KO, AAPL)

    Discover the best metrics for stock investors to utilize when selecting and evaluating the best opportunities in growth investing.
  6. Investing

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  7. Financial Advisor

    The Investment Strategy Behind T. Rowe Price Capital Fund

    Learn about the T. Rowe Price Capital Appreciation Fund and its investment strategy, portfolio composition, management, investment performance and terms.
  8. Investing

    T Rowe Price Capital Appreciation Fund Performance Case Study (PRWCX)

    Check out an overview of T. Rowe Price Capital Appreciation Fund as well as its financial performance and historical trends over the past five years.
RELATED FAQS
  1. Why would you look at year-over-year rather than quarterly growth?

    Find out why year-over-year growth analysis is more common than quarterly growth analysis in stock valuation and why investors ... Read Answer >>
  2. What are the best indicators for evaluating technology stocks?

    Technology stocks are often some of the most discussed stocks on the news. How can investors spot the company that will roll ... Read Answer >>
  3. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  4. What is the difference between capital investment decision and current asset decision?

    Learn how capital investment decisions are long-term funding decisions, while current asset decisions are short-term funding ... Read Answer >>
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center