Friday, September 2, 2011

Stock Picking Strategies: Growth vs value Investing

What is Value Investing?

Value investing is a strategy of selecting stocks that trade for less than their intrinsic values. Markets over react to both good as well as bad news resulting in stock price movements that do not correspond with the company's long-term fundamentals resulting in price value mismatch. Value investors try to capture this mismatch and buy stocks when the value is more than what the current price is and vice versa.

Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.

What is Growth Investing?

Growth Investing is a strategy where an investor selects stocks which has high growth potential. A growth stock is defined as a company whose earnings are expected to grow at an above-average rate compared to its industry or the overall market.

Following is a video which explains the difference between the above two strategies:

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