Secrets to Growth Investing and Value Investing
So you want to make money in the stock market. To do that you have to have a method. The only way to make money is to have a plan.
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
Growth investors invest when they see the potential for big earnings growth in a company and don't worry how about high or low a stock is valued at. All they want is to see earnings growing. William O'Neill of Investor's Business Daily is the most popular growth investor, because he wrote the book How to Make Money in Stocks that shows you how to be a growth investor. He buys stocks in companies that have quarterly earnings growth of 20% or more. If the company has a new product coming out he likes it even better. He also only buys stocks that are acting stronger than other stocks in its group, although many other growth investors do not look for this.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
The problem with growth companies is that at some point the growth slows down. Usually this happens right as the excitement surrounding the company is at a crescendo. The stock then usually falters and goes nowhere despite the continued good news. What is happening is that company insiders know that the future is not going to be as easy as the climb up to ascendancy and start to sell out ahead of the crowd, thereby putting a lid on any future price advances.
Most growth stocks go up a lot, because people like to bet they keep going up. It is a big momentum play. But when bad news hits then the momentum can switch and go to the downside. So to play growth stocks you have to know what you are doing when it comes to trading and putting in your buy and sell orders.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
Most value investors look for companies whose stock is trading at a very low valuation due to a temporary market condition, such as low sales, a slow economy, or an extreme bearish sentiment in regards to the company that is unwarranted.
When you buy really cheap though sometimes it can take a long time before the stock goes up since investors can stay scared for a long time. It takes times in bear markets for the stock to go up too. So you have to be patient sometimes to be a value investor.
Value investing methods also tend to underperform strategies based on growth during bull markets and can cause investors to sit out on the best moving stocks. For instance Warren Buffet refused to invest in technology stocks during the 1990's, because they did not meet his valuation criteria. - 23311
There are two basic investing methods that successful investors use to make money. They either use a growth or value oriented approach to investing, which looks for companies whose earnings are rapidly growing or whose stock is undervalued, or they employ technical analysis, which examines prior price and volume movements in order to forecast the future price movements of financial assets. Some investors use a combination of strategies, such as William O'Neill who combines a growth and technical approach to investing in his book How to Make Money in Stocks and in his newspaper, Investor's Business Daily.
Growth investors invest when they see the potential for big earnings growth in a company and don't worry how about high or low a stock is valued at. All they want is to see earnings growing. William O'Neill of Investor's Business Daily is the most popular growth investor, because he wrote the book How to Make Money in Stocks that shows you how to be a growth investor. He buys stocks in companies that have quarterly earnings growth of 20% or more. If the company has a new product coming out he likes it even better. He also only buys stocks that are acting stronger than other stocks in its group, although many other growth investors do not look for this.
Growth stocks usually do better than other stocks in bull markets, but can fall hard in a bear market. There are some dangers to growth investing. If all of a sudden the growth in the earnings stops the stocks can fall very hard, because investors are all betting on the big earnings growth to keep going on.
The problem with growth companies is that at some point the growth slows down. Usually this happens right as the excitement surrounding the company is at a crescendo. The stock then usually falters and goes nowhere despite the continued good news. What is happening is that company insiders know that the future is not going to be as easy as the climb up to ascendancy and start to sell out ahead of the crowd, thereby putting a lid on any future price advances.
Most growth stocks go up a lot, because people like to bet they keep going up. It is a big momentum play. But when bad news hits then the momentum can switch and go to the downside. So to play growth stocks you have to know what you are doing when it comes to trading and putting in your buy and sell orders.
The opposite of growth stock investing is value investing. The most famous value investors are Warren Buffet and his mentor Benjamin Graham. Value investors look for companies with low debt, a high book value, a dividend yield, a high sales-to-price ratio, and a low price-to-earnings ratio, among other things.
Most value investors look for companies whose stock is trading at a very low valuation due to a temporary market condition, such as low sales, a slow economy, or an extreme bearish sentiment in regards to the company that is unwarranted.
When you buy really cheap though sometimes it can take a long time before the stock goes up since investors can stay scared for a long time. It takes times in bear markets for the stock to go up too. So you have to be patient sometimes to be a value investor.
Value investing methods also tend to underperform strategies based on growth during bull markets and can cause investors to sit out on the best moving stocks. For instance Warren Buffet refused to invest in technology stocks during the 1990's, because they did not meet his valuation criteria. - 23311
posted by Mr. Forex at
2:02 AM
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