24 Jul A Comparison of Growth and Value Stocks

Stock portfolio and mutual funds investing are influenced by growth and value of the companies. Investors who utilize mutual fund growth strategy identify stocks that have a high potential for high earnings. On the other hand, value fund investors are interested in stocks that seem to be undervalued in the financial market. Many fund managers minimize investment risks by investing based on both growth and value factors.

Determining stocks based on growth and value

Growth firms mostly aim at realizing growth in high earnings despite the economic environments. Emerging companies have a high potential for realizing an increase in growth earnings. However, the emerging companies have unsatisfactory trends showing a strong increase in growth earnings.

Value stocks represent firms that perform poorly in the money market and thus have bargain price that is less than the book, liquidation, and replacement value. Value stocks have low price than stocks of other firms in the same industry.

Complementary investment approach

Investment managers select stocks by analyzing factors such as value and growth. Investors interested in growth fund select successful firms that record high financial performance and have the capacity to maintain the high productivity trends. Investors purchase the stocks at a high price to earnings ratios, with the objective of selling at higher prices in the future.

The main disadvantage of purchasing growth stocks is that the price can drastically reduce when there is negative information about the firm. Value fund investors select companies that possess good business fundamentals, despite showing low performance in the money market. They purchase the stocks at low prices, preferably below the price level of firms in the same industry.

Managing investment risks by combination

Individual investors can increase the chance of earning high returns through combining the two investment types. This investment strategy enables the investor to benefit in all the stages of the economic cycle. Value stocks mostly record high earnings during the recovery phase of the economy. Growth stocks perform better in bull markets when firms are experiencing less interest and profitability levels.

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