There had been a lot of talk about whether value investing or growth investing was better. The people who support each way of investing say that their way is better than the other.
I think each has something to offer. As someone who likes value investing, let me explain why it's a good idea. First, value investors buy companies in industries that are well-established. So, it's easier to guess how much money such a company will make. This is why I tend to invest in value. I think it's better to cut risk than to chase return. Anyone can guess that after a few years, a small biotech company A will make X amount of money. But if your guess is wrong, how do you figure out what the fair value of the common stock is? Your estimate will not be right. Infections come and go. Tech trends come and go. Some people might think it makes no sense, but I prefer an industry with low or no growth.
Another good thing about investing in value stocks is that the companies might give you a good dividend yield. They are growing less, and the people in charge don't think they need all that money to grow. Because of this, they want to pay dividends to shareholders. This makes things safer.
Even so, I think the return on growth stocks will be higher than the return on value stocks. No, I don't mean that you can make a lot of money by buying stock that is overpriced. You should buy it at a fair price, of course. You shouldn't pay too much for any stock, even one that's going to grow. Growth stocks are shares of companies that are growing quickly or are expected to grow quickly in the future. Is advertising a business that is growing? Yes, but it doesn't get bigger. How about advertising where you pay per search or per call? Oh, yes. If you put your money into these kinds of companies, you are buying growth stocks. Less than 5% of the advertising budget goes to these new types of advertising. Can their part get bigger? You bet. Pay-per-click advertising will get a bigger piece of the advertising pie if it is more cost-effective for advertisers to use it.
We can say that value investing involves less risk for less return. On the other hand, growth stock takes on more risk in order to make a bigger profit. That's all right. But there are other ways to invest that will make you lose money. A lot of people invest in ways that don't pay off well and come with a lot of risk. One way is to buy a stock at any price. Don't think that growth stocks mean you should buy at any price. It makes no sense at all. When you buy a common stock, you have to do some math and make some guesses. Find out what the stock's fair value is and decide if you want to buy it based on the risk/reward it offers.
