Introduction
Hello trading-view! This post aims to find out which trading "technique" is the best; looking for undervaluation or looking for consistent and rapid earnings growth. If you just want an answer skip ahead to the end, but stick with me to get all the information concerning my decision, the advantages and disadvantages each strategy has, as well as a quick summary of both.
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Value: core principles
Value investors aim for the bigger companies that experience a period of unpopularity among the overall public. The bad news each stock has shouldn't be large enough to permanently damage the reputation of the company, halt it's progress for an extended amount of time, or do any lasting destruction. Metrics such as the PE ratio and the PB ratio can help find these stocks. For example; CFG is a bank stock that had plummeted as a result of the Covid 19 pandemic. It's financial were decent, it was undervalued, and overall a solid investment that has increased 39% since I first noticed it. With a market cap of now 16 billion dollars, it isn't a small company either, and shows just how effective this method of picking stocks can be.
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Growth: core principles
Growth investors aim for the exact opposite kind of stock as value investors; small companies that are in a period of unusual growth and popularity. Rising earnings and sales are characteristic of such companies, as well as a consistently high PE ratio. One example of a growth stock (that most people should know about at this point) is tesla, the Elon Musk owned EV maker. Since the beginning of 2020 the price of one share has skyrocketed by 850%, a textbook example of a company with strong public support, room to grow, and rising earnings/sales.
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Value: Advantages/Disadvantages
Advantages
1. Not very risky as long as the issues with the company aren't very big.
2. Value investing mutual funds have, over the long run, beaten out growth stock mutual funds, giving it the historical edge.
Disadvantages
1. Returns may take a long time to materialize depending on when a company becomes favored by wall street again.
2. The returns are less the vast majority of the time, since you are aiming to sell at or slightly above true value, while growth investors want to sell very much above the true value.
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Growth: Advantages/Disadvantages
Advantages
1. The profit potential is greater when growth investing, and extreme spikes to the upside are not unheard of (again, look at tesla and other companies like it).
2. It normally takes less time for profits are realized, although nothing is guaranteed.
3. There certainly isn't a shortage of small companies with room to grow.
Disadvantages
1. If your stock falls out of favor, the value of your holdings may fall as well.
2. Growth investors face high risk and can lose money easily on failed start-ups.
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Which is the best?
Everything depends on you. If you want a *relatively* stable source of income with *relatively* low risk, then you should choose value investing. If you want to be speculative and make more on any one trade, then growth investing is right for you. In the end, there is no one strategy that is the best for everyone; some will like value, and some will prefer growth. Links are down below if you want more in depth explanations of what growth and value investing is, and I will post again soon. Good luck and great trading everyone!
*not financial advice.
Hello trading-view! This post aims to find out which trading "technique" is the best; looking for undervaluation or looking for consistent and rapid earnings growth. If you just want an answer skip ahead to the end, but stick with me to get all the information concerning my decision, the advantages and disadvantages each strategy has, as well as a quick summary of both.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Value: core principles
Value investors aim for the bigger companies that experience a period of unpopularity among the overall public. The bad news each stock has shouldn't be large enough to permanently damage the reputation of the company, halt it's progress for an extended amount of time, or do any lasting destruction. Metrics such as the PE ratio and the PB ratio can help find these stocks. For example; CFG is a bank stock that had plummeted as a result of the Covid 19 pandemic. It's financial were decent, it was undervalued, and overall a solid investment that has increased 39% since I first noticed it. With a market cap of now 16 billion dollars, it isn't a small company either, and shows just how effective this method of picking stocks can be.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Growth: core principles
Growth investors aim for the exact opposite kind of stock as value investors; small companies that are in a period of unusual growth and popularity. Rising earnings and sales are characteristic of such companies, as well as a consistently high PE ratio. One example of a growth stock (that most people should know about at this point) is tesla, the Elon Musk owned EV maker. Since the beginning of 2020 the price of one share has skyrocketed by 850%, a textbook example of a company with strong public support, room to grow, and rising earnings/sales.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Value: Advantages/Disadvantages
Advantages
1. Not very risky as long as the issues with the company aren't very big.
2. Value investing mutual funds have, over the long run, beaten out growth stock mutual funds, giving it the historical edge.
Disadvantages
1. Returns may take a long time to materialize depending on when a company becomes favored by wall street again.
2. The returns are less the vast majority of the time, since you are aiming to sell at or slightly above true value, while growth investors want to sell very much above the true value.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Growth: Advantages/Disadvantages
Advantages
1. The profit potential is greater when growth investing, and extreme spikes to the upside are not unheard of (again, look at tesla and other companies like it).
2. It normally takes less time for profits are realized, although nothing is guaranteed.
3. There certainly isn't a shortage of small companies with room to grow.
Disadvantages
1. If your stock falls out of favor, the value of your holdings may fall as well.
2. Growth investors face high risk and can lose money easily on failed start-ups.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Which is the best?
Everything depends on you. If you want a *relatively* stable source of income with *relatively* low risk, then you should choose value investing. If you want to be speculative and make more on any one trade, then growth investing is right for you. In the end, there is no one strategy that is the best for everyone; some will like value, and some will prefer growth. Links are down below if you want more in depth explanations of what growth and value investing is, and I will post again soon. Good luck and great trading everyone!
*not financial advice.
