What is growth investing

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Rishi Kashyap
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What is growth investing


For 15 years I never understood growth investing !
I always thought it to be a B-school jargon for buying stocks costly !

I always bought low PE Ratio stocks, which was my core investment philosophy !
My valuing stocks methods gave "satisfactory returns" !
I read dozens of investment books since 2010, sometimes about growth Investing too !
I did many experiments, to find Shares to invest.
I analyzed my previous track records, to see where I went wrong and what I did right !
In 2020, when Pandemic Corona, caused Share Market to crash, I suddenly realized the importance of growth investing.
what is growth investing
There were many unanswered questions or missing puzzles, when doing Stock Investment with only VALUE INVESTING :

  1. Why some shares always trade with high PE and never gets undervalued ?
  2. What is Growth Investing !
  3. Why future performance of company is more important than past performance ?
  4. How to predict the future of a company ?
  5. How to value growth stocks ?
  6. What is Mr Warren Buffett Investment strategy ?
  7. Do I need to change my Investment strategy ?

I found few answers in some cyclic stocks which I bought undervalued and sold them overvalued !
I repeated this 3 to 4 times in past 10 years, each time getting more than my expected 20-50 % return !
However, if I would have held to such Growth stocks, I would have got 10-15X returns in last 10 years !
That's a CAGR return of 25-31 % ! Ouch !

Value investing did help me solve Stock Investment puzzle with few missing pieces.
The missing pieces in that jig-saw puzzle was completed by Growth Investing !

What is Growth Investing ?
In very simple terms growth investing is buying the share of a company which you expect to grow fast or continuously for some years.
Other way to say is that, you are trying to buy a company in 100 Rs now with an expectation of it going to 200 Rs or 300 Rs or even MORE in future.
Those who follow this style of stock investment are known as Growth investors.
The real high returns in share market isn't in finding undervalued stocks but in finding growth stocks !
Once you have found your Growth stock, the easiest way to make money is just to hold to them till they are performing !

Obviously if you are going to hold growth stocks for few years, then it is best to invest with your spare money which you will not need in coming  few years ! The reason is simple which I also explained in Margin of safety under Stock market probability of earning. In short run certain unseen events like Corona may affect the company earnings ! If you SELL the share on seeing a loss of 10-20% you certainly will miss the tide in the long run ! (Plz read avoid stop loss and If Share investment is so simple)

Who started Growth Investing ?
Mr Thomas Rowe Price Jr. is considered as the father of growth investing ! It was also explained by Mr Philip Fisher in his book Common Stocks and uncommon profits (Which I read, I re-read and still did not understand till 2020 !)

Obviously predicting future of the company is the key skill which a growth investor needs. Even this is not nearly as complicated as many Stock market expert ("whatever that mean") would have you believe.

In the up-coming chapters we will detail about Mr Warren Buffett Investment strategy and how he switched from Value Investing to Growth Investing !


Rishi Kashyap | | EDIT

Rishi Kashyap
8.7 K
X Value Investing vs Growth Investing

We have detailed about what is Value Investing before, in this Share Market tutorial.
Below we explain its difference from Growth Investing !

Value Investing vs Growth Investing
Value Investing is finding undervalued stocks, let us say with Intrinsic value of 100 Rs and buying them at a much lower price, perhaps at 50 Rs or lower.
Once the price corrects Value Investors sell the share in hefty profit !

Growth Investing is finding growth stocks, let us say with present Intrinsic value of 100 Rs and buying them at perhaps 120 Rs or higher because we expect company to grow and future price to go much higher perhaps 500 Rs or 600 Rs or even more !
Value Investing vs Growth Investing
Following are the mark difference in strategy of Value Investor and Growth Investor :

  1. Value Investor intention is to sell when Shares are overvalued !
    Growth Investor knows that share will become overvalued but he holds it for more growth.
  2. Value Investor has an intrinsic valuation based on past historical performance, he is not predicting the future performance !
    Growth Investor is trying to predict the future performance and buys basis that future valuation.
  3. Value Investor has few months to few years holding vision for the Stock of the company.
    Growth Investor has few years to decades to life-long holding vision for the company. The idea is holding the share till the company grows !

Growth Investing strategy
Growth Investing is nothing else then an example of Power of compounding.  You want to invest in the shares of companies,  which grow their earning and hence the share price.

We will detail about it in coming chapters of this section. However, we have also tried explaining it before by
  1. Compound Interest simplified
  2. Rule of 72
  3. Getting rich simplified
  4. CAGR Calculator
  5. Good Stocks vs Great Stocks (Plz read Small Cap vs Mid Cap vs Large Cap Stocks)

Is value investing dead ?
These days many stock traders and growth investors declare that Value Investing has lost its value (pun intended).
I have told before, worth repeating though, if you do not know how to value a stock, its is not investing,  its speculation !

Many Stock Investors have burnt money by loosing patience and buying a growing company at so high price that it took long years to break even, even after expected growth. Investing in growth stocks does not mean "Growth at any price" !
Margin of safety still prevails, "growth at reasonable price" is the winning mantra !

In coming chapters we will discuss Mr Warren Buffet investment strategy to understand how he judged future performance and what all he saw in share of a company before investing, but before that a WARNING CHAPTER When you fail, you start to teach !


Rishi Kashyap | | EDIT



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