• Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US

Business Study Notes

B.Com, M.Com. BBA & MBA Exam Study Online

  • Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US
Home » Difference between Value & Growth Investing

Difference between Value & Growth Investing

By Richard Daniels Reading Time: 3 mins
Updated November 19, 2016

Value investing & growth investing are two approaches to investing that are considered by the investors in making investments. Each one has its own characteristics and advantages. The investors which are interested in value investing are referred as value investors while the other ones are considered as growth investors.

Value Investing Strategy

Value investor considers the purchase of certain stock of company only when fundamental analysis conducted justifies that purchase in spite of the fact that the considerations of fundamental analysis are apparently inconsistent with the view of the entire marketplace. Certain financial ratios of the company are considered like return on equity ratio, price to book ratio and return on assets ratio etc. There are certain analysts who tried to ascertain earnings growth within specified industry and many of evaluated results have low growth rates. Such companies are struggled to identify whose growth in the industry is above-average. The value investor patiently waits to obtain the fruitful results from his research. Mostly value investor considers those new corporate ventures that are based on the firm ideas and experienced management. They do not prefer to apply bandwagon approach to investing or considering the pie-in-the-sky ideas.

The value investors also consider regression to mean approach. They believe that the expected returns of the securities are long term in nature with certain level of risk connected with them. For example an individual lives in a region where there is 58% annual average temperature. If the existing temperature is 74%, then the individual predict that the temperature will decline over the next few months if no other information in regard is available. Similarly if the current temperature is 26%, then the resultant long term anticipation is the rising of temperature. Value investors use the same logic in their company analysis about the prices of stocks and the linked returns. When the return of a stock is below from its long term expected level, it is the anticipation that the stock price will be adjust in such a way in the future that the returns will rise resultantly. On the similar way when extraordinary returns are offered then they will probably adjust in the future according to the average long term returns against the connected level of risk.

This fact is defined in a different way that when a security performs extraordinarily well for sometime but that over-performance is adjusted will probably be adjusted in future time when the security performs below expectations. The useful technique is to buy that security which is offering return below than long term average return. In a similar way the security whose performance is above the long run expected rate of return is better to sold.

Growth Investing Strategy

The term growth in investment is referred to two things which are investment objective and the investment style. In the approach of growth investment, the investor searches the companies that are offering steady growth for investments. It further includes the two factors

  1. The Information Trader
  2. True Growth Investor

The information Trader

The information trader is in hurry and wants immediate profits. He considers that processing news better than the other persons is the formula for making quick profit. Also he considers that the marketplace is characterized by information differentials. This means that better information is available to some people while others have not such access. Also some individuals process the available information in a better way as compared to other individuals. In fact the information trader believes that analyzing the complete information in an effective manner than other persons will ensures the above-average profits.

The True Growth Investor

The true growth investor is not in hurry and has potential to wait. But he thinks that above-average returns can be earned by the good investment manager for his client. Those companies that are favored by the financial community currently are focused by the true growth trader. There is significant price rises for the companies like Microsoft, Intel and Gateway due to rapid growth of the home computers and information superhighway developments. In certain situation it is not clear to justify the high price of particular stock with certain level of associated earnings of the stock. The growth investors are interested in the future prospects of the stock so they are willing to pay more for it. In fact they are purchasing the future earnings that may or may not generate.

Author at Business Study Notes
Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.

Related Posts:

  • Financial Ratio Analysis | List of Financial Ratios
    Financial Ratio Analysis | List of Financial Ratios
  • Functions of Finance – Financial Ratios
    Functions of Finance – Financial Ratios
  • Common Stock and Preferred Stock / Investment Growth Model
    Common Stock and Preferred Stock / Investment Growth Model
  • Communication Strategies Definition | Types of Communication…
    Communication Strategies Definition | Types of Communication Strategies
  • What is the Process of Motivation? Explain in detail
    What is the Process of Motivation? Explain in detail

Filed Under: Finance, Investment Analysis and Portfolio Management Tagged With: Growth Investing Strategy, Value Investing Strategy

Related Posts

System-Views-of-Management-image

System Views of Management

System Views System views of management associates with the Management division of the organization and it assumes that all of the organizations are … [Read More...]

Leadership Theories

Situational Leadership Theories

Situational Leadership Theories Situational model of leadership is a factor that emphasizes the behavior of the leaders regarding different situations. … [Read More...]

Behavioral Leadership Model

Behavioral Leadership Model

Leadership  Leadership is the most critical and complex responsibility across any organization. It is because the leadership requires to be realistic, … [Read More...]

career development process in hrm

Career Development Process

Career Development Process Today's career development process has become a threat for students, especially a question that may stun many students who have … [Read More...]

Strategic leadership

Strategic Leadership Model

Strategic Leadership Model The strategic leadership model is basically the study of the leadership style. It describes the ways of modernizing an … [Read More...]

Types of Managerial Decision Making

Types of Managerial Decision Making

Managerial Decision Making Decision Making is an art of selection of one feasible alternative decision from many. Therefore types of managerial decision … [Read More...]

Quantitative-management-approach

Quantitative Management Approach

Quantitative Management Approach The quantitative management approach is used to enhance decision making power by using quantitative tools. As well as … [Read More...]

Effective-business-messages-image

Effective Business Messages

Effective Business Messages The process through which business messages are effectively prepared that have the potential to create desired results from … [Read More...]

Search the Site

ADVERTISEMENT

Business Study Notes

Business Study Notes is all about business studies or business education. Visit us to find here free business notes of all the subjects of B.com, M.com, BBA & MBA online.

Disclaimer

All the images and videos present on the Business Study Notes are not owned by us, if you found anything under copyrights, please Contact Us, we will remove it ASAP.

Categories

© Copyright 2023 Business Study Notes. All rights reserved. Privacy Policy, Sitemap.  
DMCA
PROTECTED