What is growth investing?

The growth investing strategy involves investing in stocks that are expected to post high growth in sales, profits, etc., compared to their peers in the industry. The aim is to maximise capital appreciation. Growth companies reinvest most of their cash flows/profits toward further growing the business. Hence, these companies pay low to no dividends.

What is value investing?

Value investing is quite the opposite of growth investing. Value investing strategy involves investing in stocks that are available at below their intrinsic value. These stocks are also known as undervalued stocks. Usually, large-cap companies that have matured have a limited scope for growth in a sector with several competitors. Hence, the market may assign a lower valuation to such companies due to limited growth in sales and profits.

How does growth investing work?

In growth investing, investors identify a company that has the potential to grow its sales and profits at a higher rate. They may look at:

How does value investing work?

In value investing, investors identify a company trading below its intrinsic value. The stock may be selected on various parameters such as management quality, competitive advantage(s), a low price-to-earnings (PE) ratio, low price-to-book (PB) ratio, cash flow potential, turnaround candidate, or others.

How to choose a stock - Factors to consider

When choosing a stock for investment, whether using the growth or value style, keep the following factors in mind:

Growth investing vs. value investing: Which one should you choose

Choosing between growth investing and value investing depends on factors such as your risk appetite, overall market sentiment, etc. Growth investing may be suitable for you if you have an aggressive risk profile with a long investment horizon. Similarly, value investing may suit you if you have less appetite for risk. In bull markets, growth investing has the potential to give higher returns. In a bear market, value investment has the potential to do well, as there is a lower downside. You may even adopt a combination of the growth and value investing style to build an investment portfolio to earn better risk-adjusted returns.

Growth vs. value investing: What is it, how does it work, and which one should you choose?

Date : 27/09/2023
Read: 10 mins

Growth investing involves investing in companies with high growth potential to generate capital appreciation. Value investing involves investing in companies trading below intrinsic value with the potential to go higher. What is the difference between the two investing styles, and how to choose?

People invest in stock markets, either directly in stocks or mutual funds, to achieve their financial goals. However, different investors take different approaches to equity investing. These investment approaches include active vs. passive funds, value investing vs. growth investing, diversified funds vs. focus funds, core and satellite portfolio, investing in sectoral/thematic funds or smart beta funds, etc. In this article, we will discuss growth vs. value investing: What are these investing styles, how do they work, what is the difference between them, and which one should you choose? Highlights of the article Growth investing involves maximising capital appreciation by investing in stocks with higher growth potential. Value investing involves investing in stocks tra...

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