Value vs Growth Investing

The cover story in the recent issue gave me a good outlook on value traps. However, what are the key differences between value and growth investing? - Chitra T 

Editor Responds: We appreciate your kind words of encouragement. Value investing focuses on finding undervalued stocks that are priced below their intrinsic value. Investors employing this strategy seek out companies with solid fundamentals, such as low price-to-earnings ratios and high dividends. They anticipate that the market will eventually recognize the true worth of these stocks, leading to price appreciation. On the other hand, growth investing emphasizes identifying companies with high growth potential and allocating capital accordingly. Growth investors prioritize companies exhibiting rapid earnings growth, strong market positions, and innovative products or services. They are willing to pay a premium for these stocks based on their future earnings prospects.

While value investing leans towards established, financially stable companies, growth investing targets dynamic industries and emerging sectors. Value investing typically involves a patient, long-term approach, while growth investing often entails shorter holding periods to capitalize on rapid price appreciation. Ultimately, the key distinction lies in the investment focus: value investors seek out undervalued opportunities, while growth investors target companies with the potential for substantial future growth. Keep writing to us with your queries.