Value investing entails looking at Price-to-book and Price-to-earnings ratios of
stocks that are lower than average and compared with the company’s intrinsic
value. An investment is made when this value is high enough after considering a
safety margin for calculation inadequacies.
Arguably the most popular investment method, Growth Investing entails focusing purely
on capital appreciation. Growth investors choose stocks whose prices are expected
to grow at a better rate as compared to its peers. There are many ways to create
an investment plan that focuses on a capital appreciation. Some such strategies
include investing in small cap stocks with a huge potential to grow or blue chip
stocks or emerging market stocks.
Growth investing requires an analysis of the company’s historical performance
and overall management to assess the possibility of generating returns that outperform
the market averages.
Growth and Value Investing can also be deployed as two elements of a portfolio to
benefit from the current performers as well as the underdogs. Typically, growth
investing earns returns when the market is rising and value stocks perform when
the markets fall.