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Investing for Growth

Growth investors are using todays information to identify tomorrows strongest stocks. Theyre looking for winners stocks of companies within industries that are expected to experience substantial growth. They seek companies in a position to generate revenues or earnings greater than what the market expects. When growth investors find a promising stock, they buy it, even if it has already experienced rapid price appreciation, in the hope that its price will continue to rise as the company grows and attracts more investors.

Fast Fact: Words on Growth. It seldom pays to invest in laggard stocks, even if they look tantalizingly cheap. Look for, and confine your purchases to, market leaders. William J. ONeil, noted growth investor Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrows leaders; they are they are less focused on the value of the underlying company.

For example, growth investors may favor companies with a sustainable competitive advantage, that are expected to experience rapid revenue growth, that are effective at containing cost, and that have an experienced management team in place.

Value and growth investing are opposing strategies. A stock prized by a value investor might be considered worthless by a growth investor and vice versa. Which is right? A close review of your personal situation can help determine which strategy may be right for you A growth stock is a company whose shares are expected to grow faster than the overall market average. Normally, these stocks don't pay dividends because they are in an emerging sector and prefer to reinvest to keep the company growing. In theory, this reinvestment keeps the company's growth stimulated so shares of the stock grow in value exponentially. While there's no guarantee on how long---or even if---growth can be sustained, the appeal of such stocks is obvious. Read more: The Advantages of Investing in a Growth Stock | eHow.com http://www.ehow.com/list_6120901_advantages-investing-growth-stock.html#ixzz2QfgF3hid

rowth investing can provide investors with a number of unique benefits and solid returns. However, there are several disadvantages that you will need to know about before getting involved with growth investing. Here are some of the disadvantages of growth investing. Ads by Google Pick The Winning Stocks Astro Economics Newsletter Special Offer www.astroeconomics. com The Future of Fuel Cellulosic Ethanol, Biodiesel, Renewable Chemicals, Biorefining www.lignol.ca 1. High Volatility One of the biggest advantages of this type of investment is that it has extremely high volatility. Most companies that appear poised for growth could also lose a substantial amount of value quickly. When examining these companies, you will find that they have a high price-earnings ratio. As an investor, you have to have a high tolerance for risk and understand that the value of your stock could decrease suddenly based on nothing more than market sentiment. This is not an investment for the faint of heart. 2. Substantial Research Another potential problem with growth investing is that you have to do a substantial amount of research about stocks before you can invest in them. If you can accurately identify a company that is poised for growth, you could bring in a great return. However, identifying the profitable companies is easier said than done. In order to do this, you are going to have to do a substantial amount of research and have a good understanding of how to use valuation multiples. There are some indicators that you can use in order to identify patterns of growth in a company. This is going to require you to learn how to do this type of research and how to perform the right calculations. Many people think that they are doing an adequate amount of research when they are really fooling themselves. 3. Long Term Another disadvantage of this type of investment strategy is that it is definitely a long-term strategy. If you are the type of investor who likes to realize immediate profits and to day trade, this is not going to be the strategy for you. In order to truly realize a good profit from a growth stock, you are going to have to be prepared to hang onto it for the long term. In most cases, experts recommend that you keep growth stocks for least five years before selling them. If you do not, you might time the market wrong and find out that you sold at the wrong time. 4. Choosing the Wrong Company

Another problem that comes up with this type of investing is when you choose the wrong company to invest in. You might think that a company is poised for growth when really they are about to be run into the ground. The problem arises when the price of the stock starts to fall. You might think that since this is a growth stock, you should simply hang onto it for the next five years before selling. The problem is that it can be difficult to differentiate between a company that is going out of business and a growth company that is just extremely volatile. Read more: http://www.finweb.com/investing/4-disadvantages-of-growthinvesting.html#ixzz2QfiED8H3

Value vs Growth Investing Which Style Suits You? By Ernest Lim inShare

Most of you would have noticed that these words value and growth appear frequently in fund factsheets or through experts lips. What do they mean? What are the pros and cons of each method? Which one is superior? In this article, I will clarify some doubts which readers may have on these ubiquitous terms. What is value investing? Value investing is the method of buying equities trading at a substantial discount to their intrinsic value. This is based on a premise that markets have currently mispriced the equities but will recognize its true worth over time. Characteristics of equities which would be selected under value investing

Out of favour or boring equities e.g. fibre companies; Equities which may have some bad news; Cheap valuations such as low price to book value; low price earnings multiples (PE) etc; High dividend yields; and Mainly big companies growing at unexciting levels

And growth investing? Growth investing is the method of buying equities which are growing at above average growth rates. However, these equities may seem over-priced based on current valuation metrics such as PE ratio but this over-priced phenomenon decreases rapidly over time as earnings growth catch up with the price. An example is given below for illustration. Table 1: Comparison of companies A & B with different growth rates

Source: Ernest The prices for Companies A and B are S$40 and S$15 respectively at Year 0. Company A is growing at 50% in earnings per year whereas Company B is growing at 10% in earnings per year. At year 0, Company B trades at a PE of 15x whereas Company A trades at a lofty 40x. From year 4 onwards, Company A is consistently cheaper than Company B based on PE alone. However, it is noteworthy to readers that by buying into Company A, readers are accepting an implicit assumption that Company A continues to grow at the astronomical rate of 50% in earnings per year, at least till Year 4 (so that it is cheaper than Company B). If Company As growth rate falters and achieves only 15% from Year 2 onwards, ceteris paribus, it will only become cheaper than Company B from Year 17 onwards. Characteristics of equities which would be selected under growth investing

Typically, small cap equities which have certain new products to be introduced to the market and are highly expected to contribute significantly to the firms; Low or no dividend yields as these companies are utilizing their funds for expansion; Above average valuations such as high price to book value; high price earnings multiples etc; and Increasing recognition on the growth potential of the equities due mainly to buildup or new research reports.

Based on the analysis above, it should be apparent that both approaches have their pros and cons. These would be explained in Tables 2 and 3 below.

Table 2: Advantages and disadvantages of value investing

Advantages of growth investing Potential to realize substantial returns in A shorter time span value investing Potential to generate good income stream Disadvantages of growth investing Market downturns usually affect growth stocks more than value stocks High expectation built into the companies

he prices for Companies A and B are S$40 and S$15 respectively at Year 0. Company A is growing at 50% in earnings per year whereas Company B is growing at 10% in earnings per year. At year 0, Company B trades at a PE of 15x whereas Company A trades at a lofty 40x. From year 4 onwards, Company A is consistently cheaper than Company B based on PE alone.

However, it is noteworthy to readers that by buying into Company A, readers are accepting an implicit assumption that Company A continues to grow at the astronomical rate of 50% in earnings per year, at least till Year 4 (so that it is cheaper than Company B). If Company As growth rate falters and achieves only 15% from Year 2 onwards, ceteris paribus, it will only become cheaper than Company B from Year 17 onwards. Characteristics of equities which would be selected under growth investing

Typically, small cap equities which have certain new products to be introduced to the market and are highly expected to contribute significantly to the firms; Low or no dividend yields as these companies are utilizing their funds for expansion; Above average valuations such as high price to book value; high price earning multiples etc; and Increasing recognition on the growth potential of the equities due mainly to hype or new research reports.

Based on the analysis above, it should be apparent that both approaches have their pros and cons. These would be explained in Tables 2 and 3 below. Table 2: Advantages and disadvantages of value investing

Source: Ernest Reduces probability of a large loss by purchasing equities with a high margin of safety Cheap shares (trading at less than intrinsic value) can get cheaper and cheaper in a downtrend Returns may be lower than growth investing on an annualized basis.

Table 3: Advantages and disadvantages of growth investing

Source: Ernest Conclusion Best of both worlds Based on the Tables 2 and 3, it is apparent that both approaches have their pros and cons. In my opinion, I would blend both approaches together to pick stocks which offer both growth and value aspects. For example, based on Bloomberg estimates, Sinotel trades at around 5.4x FY09F earnings vis--vis 20.5x FY09F peers earnings. Sinotel earnings growth rate is estimated to be in the high teens at least for FY09F and FY10F. Thus, stocks such as Sinotel offer both growth and value aspects. My suggestion for readers is to combine the approaches together and pick stocks which offer both value and growth perspective. As Warren Buffett once said, Growth and Value Investing are joined at the hip. Thus, we should utilize and blend the approaches together, in order to obtain the maximum benefits.

Advantages of growth investing Potential to realize large returns in a shorter time period than value investing Potential to generate good income stream

Disadvantages of growth investing Market downturns usually affect growth stocks more than value stocks

High expectation built into the companies

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