Growth VS Value: Assessing Stock Worth
In the heady world of investing, one can observe many different trading styles. Both individuals and companies will tend to build portfolios based on their own personal stock preferences; picking and choosing a mixture of stocks based on both their present and anticipated values.
Explaining Growth and Value
Within the field are two distinct types of stock; growth and value. Surprisingly, many investors are unaware of the actual difference between the two. This may well be because the terms â€˜growthâ€™ and â€˜valueâ€™ donâ€™t technically refer to the immediate value or behaviour of a stock. Neither do they refer to the value of ownership which the buyer will receive upon purchase. Instead, â€˜growthâ€™ and â€˜valueâ€™ refer to a style of investment which is based upon the anticipated risk of purchase.
Which Stock Type is Preferable?
Growth stock tends to be associated with high-yield, profitable companies whose growth is expected to continue rising at an above-average rate. Growth stock is rarely a risky move, and generally tends to yield return over time. By contrast, value stock may have low value at present, and can be bought for rock bottom prices. However, value stock is generally bought because the investor believes that the true worth of the company has yet to be recognised in the global market, and that share prices will, in the future, increase exponentially. Value stock is more risky than growth stock, but itâ€™s worth remembering that, at one point, even shares in Google would have been considered value stock.
Put simply, itâ€™s impossible to determine whether or not growth stocks are intrinsically â€˜betterâ€™Â or more valuable than value stocks. Investment purchasing decisions should always be made in conjunction with a thorough assessment of the market, company, and of your own portfolio requirements.
Earning Driven VS Value Driven Analysis
Despite the ease at which many investors tend to divide stock into either growth or investment, one individual prefers to step away from this classification. According to Forbes, US investment billionaire Warren Buffet is known for assessing stock value on company growth and earning over time, including return on equity and retained earnings, free cash flow and debt. For Buffet, earnings can be both quantified and qualified.
Other Investment Types
Growth and value investment styles are not particular to any one market, but purchasing decisions must be amended to reflect the specifics of the particular market you are dealing in.
There is, however, one trading market in which growth and value stock investment styles cannot be fully replicated; Forex. Currencies, freely traded, cannot be described in the same way that company stock can, and therefore investment style must be developed in accordance with Forex principles. For investors without prior knowledge of Forex, itâ€™s advisable that learningÂ be undertaken in conjunction with an array of readily available research tools, which will allow you to develop a style suitable for this market.