Two of the most common investment strategies are growth investing and value investing.Value investing is concerned with trying to find good quality stocks (and other assets) that are at the time cheaply priced. There are basically two schools of thought in stock market investing today. The idea is to choose a stock that is under priced and wait for the market price correction. The first is technical analysis; the second is value investing. Value investing – where you buy stocks that are undervalued because they are trading at a lower price than what the company is actually worth.
In my view, Joel Greenblatt does a better job of explaining where to look for interesting investing opportunities in his book You Can Be a Stock Market Genius. If you find the stock price of companies you’ve invested in way above what you’ve valued them, this might be a good time to sell.
Nonetheless, growth investors will also look to traditional industries if they predict a possible major change in trend or change in consumer tastes. These investments will generally pay solid dividends that allow investors to reap the benefits of not only market gain, but compound their growth with dividends.
Growth and value aren’t just investing methods, but they are a way for investors to narrow the stocks they will invest in. History has shown us that they tend to take turns. Growth investing – where you buy stocks who’s earnings are growing faster than others.
After 90% of your companies have actually been screened out, you can then start taking a deep dive onto the company’s fundamentals, looking at its competitors, and consequently researching its possibility for growth. Greenblatt’s “Magic Formula” investing is designed to #1. beat the market and #2. withstand any short-term peaks and troughs in share price.