Value vs. Growth: Which Way of Evaluating a Stock’s Potential is Better?

Investors should use a mix of both philosophies.

Growth Investing

Unlike value investors, growth aficionados look for companies with the best prospects for above average growth. “Growth investors believe that by buying companies whose earning are growing faster than average that is the best way to get a return,” says McKissack. These investments may be in larger companies such as Google (GOOG) or Apple (AAPL).

“Growth investing has to do with name recognition,” says Douglas Coe, managing partner and chief investment strategist at Moody Reid Financial Advisors. “These are companies that everybody knows are making money. Their services are in demand and product is good and hot right now,” he adds. Unlike value investors, growth-lovers tend to ignore higher p/e ratios. If a growth investor believes a company’s share price hasn’t yet hit its peak and still has potential for rapid growth, she will purchase shares, hoping to sell at a later date at a much higher price.

So, which is best?

While some investors like to choose sides in the growth-vs.-value debate, others employ a mix of the two philosophies. In any case, diversification is key. Incorporating both value and growth strategies helps reduce risk in your portfolio. Whether it be mutual funds, or a personal portfolio, depending on your investing goals, think about looking into a value/growth blend. And remember, “putting all your eggs in one basket is scary whether its growth or value,” says Jason Tyler, senior vice president at Ariel Investments. “Neither one is necessarily safer than the other.”

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