Getting Started in Stocks: Growth or Value Investor?

How is the best way to get started investing in individual stocks?

Maybe you already own some individual stocks, but don’t have any organized way to approach buying more or perhaps you’re just getting started.

If you are ready to start investing in individual stocks in an organized and thoughtful manner, you’ll want to develop your own system and strategy.

Growth or Value Stocks?

This article is about your first step, which is deciding if you want to be a “value” or “growth” investor.

There’s no rule that says you can’t be both, although it may be easier to pick one as your primary focus and most investors usually end up more in one camp than the other does.

One strategy is not necessarily better than the other is, although over time value investors have an edge. It is important to note that growth and value investing are not opposites, just different approaches to the same problem.

Overview

Here is an overview of each so you can begin deciding which strategy makes the most sense to you.

The basic characteristics of growth investing:

• Companies exhibit higher than average growth rates in revenues and earnings
• Companies are in expanding industries that are riding an economic and/or demographic cycle
• Companies don’t pay dividends
• High growth companies often beat earnings estimates
• Holding period determined by continued growth of company

The basic characteristics of value investing:

• Companies have higher than average earnings per share
• Companies that pay high dividends
• Companies in solid, but not necessarily glamorous industry
• Companies are industry leaders
• Holding period typically longer than growth stocks

These are not exhaustive lists, but they’ll get you started.

For those who are concerned about risk, and everyone should be, of the two strategies value investing is less risky than growth investing.

Not Risk Free

That doesn’t mean value investing is risk free, but value stocks tend to be less volatile than growth stocks.

If you lean towards growth investing, you will want to pay attention to current stock and economic news – not to chase hot stocks, but to see where growth in occurring in the market.

If you are a value investor, you’ll be paying more attention to the financials using a stock screen to help you find candidates.

Either value or growth is a good place to start, but don’t dismiss the other, there are good opportunities in both strategies.