Value Investing vs Growth Investing

While investing in stock markets, it is common to come across the terms growth investing and value investing. These are the two approaches one can use to select the scripts to invest in. If compared, it is like ‘F.R.I.E.N.D.S’ and ‘The Office’, both have a huge fan base. Also, one can always accommodate both of them.

Value Investing

Value investing is similar to finding diamonds in the rough because it needs much complex research. One has to go around the fundamentals and do a comparative analysis between the market value and the underlying value of the firm to identify the value stocks. These are like sleeping giants, in which value investors invest and then wait for the giant to wake up to give substantial returns as their actual potential value is unlocked. These are less expensive than the growth stocks because they are undervalued and generally have a lower P/E ratio. It is an excellent approach for long-term investors as most of these stocks also pay dividends.

These are risky because it is not guaranteed that their value will be unlocked, but it is less risky than the alternatives because these are huge companies that are not very much affected by the market movements. Investors tend to keep them in their portfolios to hedge against the bearish trends in the market.

Some of the famous value stocks are listed below, but it is advised that one should do their research.

Growth Investing

Growth Investing refers to making money through companies with above-average growth rates. These companies show significant and continuous growth in revenues, profit margins, and cash flows. These are presumed to continue their growth, and for this reason, investors are willing to pay more as a premium, which makes them very expensive when compared to the value stocks. But these returns don’t come for free; these are associated with high risk. These stocks are not guaranteed to show the growth they have shown in the past, and these are very volatile and show the swing of high magnitude along with the market movements. Investors with a high-risk appetite should invest in them.

Some of the famous growth stocks are listed below, but it is advised that one should do their research.

Growth or Value Investing

One might want to know that which is better? One might assume that growth investing must be giving higher returns so that it would be better, but this is not true, according to some research analysts. Value stocks have outperformed growth stocks on risk-adjusted returns in the past, but this is not the same for shorter time frames.So, there is no way one can identify one of these approaches as superior. Instead, investors should determine their risk appetite and investment goals; accordingly, they should choose their preferred approach. One can always use the hybrid system, which is investing in both the growth and value stocks.