What Is Growth Investing?
Growth investing is an investment style and strategy that is focused on the growth of an investor's capital. 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.
Understanding Growth Investing
Growth investors often call growth investing a capital growth strategy because investors seek to maximize their capital gains. However, some consider growth investing and value investing to be diametrically opposed - value investors seek stocks that trade below their intrinsic value whereas growth investors tend to ignore standard indicators that might show the stock to be overvalued. Growth investing is highly attractive to many investors because buying stock in emerging companies can provide impressive returns if the companies are successful. However, such companies are at high risk.
Influential People in the Growth Investing Field
Peter Lynch pioneered a hybrid model of growth and value investing, which is now commonly referred to as growth at a reasonable price (GARP) strategy. Another notable name for growth investors is Thomas Rowe Price, Jr., who was named the father of growth investing because of his vast work on the subject and the services provided by his company, T. Rowe Price. T. Rowe Price is now a public multinational investment firm.
Philip Fisher also created his own name in the growth investing field. Fisher's growth investment style was shared in his 1958 book entitled "Common Stocks and Uncommon Profits." This book is still one of the most popular books on growth investing 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 a high potential for growth, investing in blue chips, investing in emerging markets and purchasing recovery shares.
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. However, selecting 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 fit their investment style, their capital, and their financial goals. In addition, growth investors look at the position of companies in relation to their industry performance and historical financial performance.
Growth investors look at five key factors when selecting companies that may provide capital appreciation. Growth investors investigate whether a company has strong historical earnings growth. Investors also consider 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.