Growth investing focuses on putting money into companies you believe will be valuable soon, which can range from weeks to years.
Growth investing focuses on building capital by investing in equities you believe have a high potential for increasing in price. This strategy is often used when an investor believes in the long-term value of the company underlying the security. It’s common to find growth stocks in emerging industries, such as the technology and medical sectors.
Typically, growth stocks break down into two categories:
While it may seem like a money-chasing strategy (isn’t that all investing is?), there is actually a lot of thought that goes into growth investing. Investors have to consider the current health of the stock compared to its peers as well as the company’s future potential in its industry. After all, a company with no room to grow isn’t likely to see gains on its stock prices.
For instance, growth investors will ask questions not just about the company’s financial situation, but the services and products it provides compared to the larger market.
It’s important to note that one of the immediate downsides of growth investing is that any company aggressively growing is likely a company not paying out dividends. Some investors may accept that trade due to the rapid increase in company value. Others may decide that a risky bet with no return in the interim is not worth it and opt for an alternative investing strategy.
There’s some level of work you need to put in to be a successful growth investor. If you’re looking to invest in green energy, for example, you may weigh whether you think solar panels or wind energy is “the next big thing.” Or, you may ask yourself if you think there is a future for AI in the financial markets before putting money into a new technology company.
You’ll also want to look at the company’s historical performance to get an idea of potential future growth. If you think that solar panels are the way to go, but Solar Power for All has a history of making bad investments, you may shy away from its stock. On the other hand, if Solar Panels United has a strong earnings trend and increasing revenue, there is a far higher chance they’ll continue to see growth in the future.
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