What do Growth Investors look for while Investing?

What do Growth Investors look for?

Friends, in a modern environment, many people invest in the stock market, and one of the primary goals of all those investors is to maximize the return on their initial investment and to earn the maximum amount of profit. As a result, you’ll see a variety of investors in the market.

Even if we categorize investors into different groups, they all have one goal in mind: to make the most money possible.

Well if you find out the history of successful investors in the market like Warren Buffet and Rakesh Jhunjhunwala then you can definitely come to a conclusion that there are mainly two types of investors who actually have the potential to earn money from the market. One is the value investors and the second one is definitely the Growth Investors.

So, basically in this article, we are going to discuss growth investors in detail and also we will discuss deeply how they actually invest their hard-earned money in the market. If you are also someone who is looking for the same article, then this article is definitely for you.

How do Growth Investors Invest?

Growth investors concentrate their efforts on fast-growing companies and industries.

They are optimistic about the future of a company due to promising products, services, or industries. They believe that as earnings rise, their value will rise as well, eventually catching up to the current trading price.

As a result, growth investors are willing to pay a higher price in the hope of seeing a company’s earnings grow faster in the future.

In fact, if you analyze the history of growth investors carefully, then you will come to know very easily that these investors are of such types who actually shows the willingness of buying that particular company’s shares at a too much higher price because they have unlimited trust in the company’s business idea and its management.

There are other techniques that growth investors use to assess a company's key growth drivers, one of which is known as scuttle butting. Philip Fisher pioneered this approach to investing in his book Common Stocks and Uncommon Profits. 

"Visit five companies in an industry, ask them intelligent questions about the other four competitors' strengths and weaknesses, and nine times out of ten, a surprisingly detailed and accurate picture of all five will emerge," he wrote.

The P/E Ratio is the Main Difference

Even today, many experts and experienced people of the market think that growth investing and value investing are the same thing but in reality, it is not the same and there is a significant difference between them. If someone asks you to say a common difference between the two, then you can tell that particular person about the PE ratio in both the investments.

Fundamentally, growth investors believe the main growth driver of a stock’s share price is earnings growth. It could be derived from management’s vision or the promise of an industry that a business is in, which would drive up earnings per share in the future.

If you are someone who has a good understanding of the financial concept then you may have sufficient information that usually the value investors actually look for investment in such types of stocks that actually have low P/E earning ratio. so that they have to spend less amount of capital to earn a sufficient amount of earnings from their actual capital investment.

Well, the same theory is actually not applied in the case of Growth Investors because they are such kind of investors who doesn’t care much about the actual P/E ratio, instead of that they just took a close look at the company’s management, its business model and its valuation closely.

Believe me or not I have seen some that kind of growth investors who actually put their money into the stocks which have a P/E ratio of more than 100 too.

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What About Risk Apatite?

As we all know, if you don’t want to take a risk with your capital investment, there is no return. So, risk apatite can be defined as a scenario in which we determine how much risk an investor is willing to take with his hard-earned money.

If a person has a high-risk appetite, his chances of earning more money increase, but if the market falls, things can do it the other way, and he may lose his capital investment too. So, always invest your money wisely. 

If the company’s future growth continues to rise, it is very rewarding for the growth investor. However, there is a catch. Growth investors are also more vulnerable to downside risks because they buy stocks without a sufficient margin of safety.

They frequently overpay because many investors want to invest in a high-potential growth company (even if the growth hasn’t yet materialized), and growth investors expect these stocks to outperform the market.

They expect a company’s revenue, earnings, and stock price to rise, particularly if the company is in a hot industry or has glamour stocks that are growing at more than 50% per year.

When these hot stocks, on the other hand, miss their earnings estimates, investment returns are severely harmed. This is referred to as a growth trap.

Final Conclusion on What do Growth Investors look for

The qualitative approach to investing is also known as the growth investing approach. It entails focusing solely on a company’s operations and management, with little regard for quantitative factors such as valuation. Paying a premium price is still considered rational because future prospects are not reflected in financial statements.

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