Understanding Growth And Value Investing

Knowing how to invest is the best way to build wealth. There are many ways to make or lose money in the stock market. Here, we will focus on growth and value investing. They differ in their fundamental investment approaches and valuation.

Growth stocks have visibly outperformed during the pandemic and can be more resilient during economic downturns than value stocks.

Amazon is an excellent example of a successful company dominant in all of its businesses. As the largest global online retailer, Amazon has rapidly invested heavily in fast-growing businesses, notably subscription, cloud computing products, advertising, grocery, and healthcare.

Above-average valuations often price growth stocks for perfection. That means the company results that meet or miss expectations disappoint investors. As such, investors will more quickly dispose of their shares at any troubling signs.

Cyclical stocks are considered value stocks that do better in the early stages of an economic recovery but lag in sustained bull markets. Unlike growth counterparts, value stocks are less volatile (lower betas) and usually supported by healthy dividend yields.

Catalysts are good and bad triggers directly related to a company or its respective industry. All stocks, especially value stocks, need positive catalysts to bring rising investor attention to these hidden gems.

Finding value stocks requires hard work to determine what a company is worth. An analyst’s paradise to crunch numbers to analyze a particular stock and its peer group and compare it to its market value.

The best way to achieve valuation when value investing is to find a mutual fund or an ETF. There are many value mutual funds and value ETFs ranging from small-medium and large caps.

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