There are about two reasons why investors buy stocks. They hope that the stock price may escalate in the future, leading to a higher value that would fetch a higher profit. Alternatively, they plan to turn the dividend paid on the shares as a capital for investment. Stocks are characterized by two forms, i.e. growth and value stocks. The knowledge about these kinds of stocks can be useful to investors intending to expand their portfolios more effectively.
Value stocks refer to shares trading at a lower price than the company’s worth in terms of earnings or sales. Value stocks are considered to be underpriced in relation to the companies' net worth whereby the company has not attained its full potential. Thus when it does achieve its potential the shares will have gained value (Busch, 2016). On the other hand, growth stocks are securities that trade at a price higher than the company’s worth in anticipation of the growth of the business in time. They are mainly for firms that are believed to have a high growth rate, therefore, have their shares trading at a higher price than the company’s current earnings (Busch, 2016).
Delegate your assignment to our experts and they will do the rest.
Value stock investors aim at companies that have unrealized potential and are offering shares at a price lower than their actual worth. They figure that a company with unrealized potential trades at an underpriced value, therefore, their value is bound to increase when they attain the full potential. The company’s value in the market is below its actual value when putting the earnings, dividends and book value into consideration (Busch, 2016). Contrary, growth stocks are from successful companies that compete well in the market. Investors bank on the company’s growth to yield higher returns, and since they receive returns from future capital accumulation it means with growth comes higher yields. Growth investors are focused on large enterprises that are growing above the average rate of other companies within their revenue ratings rather than the current performance of the enterprise (Busch, 2016).
The stock market has been a wealth creator over an extended period. Growth investing and value investing have been the principal means of accumulating wealth in the market. Over time, growth and value have expanded and increased generally. Growth investors are reliant on higher growth rate companies whereas value investors are reliant on transacting at a discount to the value of the company in the market. According to studies by the bank of America value investing outperforms growth investment. Growth investing performs best when the economy is weakening while value investing best performs when the economy is growing. However, Value stocks are more available in different sectors which may be why they outperform growth stocks (Williams, 2016). Growth investing is not to be put off, but value investing is preferable in the long run as value premiums increases with increase in periods as per the comparison by Wiley Finance Global (Wiley Global Finance, 2016).
Although growth investing and value investing are cyclic in that they interchange high seasons, Value stocks are more attractive to new investors and the less insistent investors who are the majority in the market. They are low priced making the cheap and affordable to a wider range of customers. Besides, value investing is desirable in the long run as it is believed to offer more returns in with an increase in periods. Given enough time and with the patient, value investing is bound to bring high returns surpassing growth stock returns (Divine, 2016).
Grittani is one of the successful value investors having grown 1500 dollars to one million in three years. Griitani traded in small stocks from small companies. His success is because of the inefficiency of the value stock market. He has been very successful by taking advantage of scammer schemes and buying before the crowd (Yousuf, 2013).
References
Busch, M. J. (2017). Growth stocks vs. value stocks. J.W. Cole Financial, Inc. Retrieved on 26 April 2017 from http://www.buschinvestments.com/Growth-Stocks-vs--Value-Stocks.c1022.htm#.
Divine, J. (November 7, 2016). Growth Stocks or Value Stocks: Which are winning? U.S. News & World Report L.P. Retrieved on 26 April 2017 from http://money.usnews.com/investing/articles/2016-11-07/growth-stocks-or-value-stocks-which-are-winning.
Wiley Global Finance (2016). Comparing the results of value and growth stock market indexes. Fidelity Investments FMR LLC. Retrieved on 26 April 2017 from https://www.fidelity.com/learning-center/trading-investing/trading/value-investing-vs-growth-investing.
Williams, S. (June 19, 2016). Growth Stocks vs. Value Stocks: Over the Long Term, Your Best Bet Is. The Motley Fool Retrieved on 26 April 2017 from https://www.fool.com/investing/2016/06/19/growth-stocks-vs-value-stocks-over-the-long-term-y.aspx.
Yousuf, H. (December 16, 2013). Trader turns $1,500 to $1 million in 3 years. Cable News Network. A Time Warner Company . Retrieved on 26 April 2017 from http://money.cnn.com/2013/12/16/investing/penny-stock-trader-millionaire/.
