Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as value investing.
However, some notable investors such as Warren Buffett have stated that there is no theoretical difference between the concepts of value and growth ("Growth and Value Investing are joined at the hip"), as growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. Buffet has recognized the influence of his business partner Charly Munger on this view, which is best expressed by the famous Buffett saying "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".
Thomas Rowe Price, Jr. has been called "the father of growth investing" because of his work defining and promoting growth investing through his company T. Rowe Price, which he founded in 1937 and is now a publicly-traded multinational investment firm.
Also influential in shaping this investment style was Phil Fisher, whose 1958 book "Common Stocks and Uncommon Profits" is still today a reference for identifying growth companies.
Growth at reasonable price
Growth At A Reasonable Price is a strategy that blends aspects of growth and value investing. Investors seeking growth at a reasonable price look for stocks that they believe will deliver above-average growth, but that are not too expensive.
After the bursting of the dotcom bubble, "growth at any price" has fallen from favour. Attaching a high price to a security in the hope of high growth may be risky, since if the growth rate fails to live up to expectations, the price of the security can plummet. It is often more fashionable now to seek out stocks with high growth rates that are trading at reasonable valuations.
Famous Growth Investing Quotes
- Peter F. Drucker - “The purpose of business is to create and keep a customer”
- John D. Rockefeller - “Don’t be afraid to give up the good to go for the great.”
- Sam Walton - “There is only one boss. The customer. And he can fire everybody in the company simply by spending money somewhere else.”
- Abraham Lincoln - “I do not think much of a man who is not wiser today than he was yesterday.”
- Ralph Waldo Emerson - “Unless you try to do something beyond what you have already mastered, you will never grow.”
Growth investment vehicles
There are many ways to execute a growth investment strategy. Some of these include:
- Emerging markets
- Recovery shares
- Blue chips
- Internet and technology stock
- Smaller companies
- Special situations
- Value investing
- Quality investing
- Philip Arthur Fisher and Kenneth L. Fisher
- David Dodd
- Warren Buffett
- Growth stock
- Growth Investment Managers
- Magic formula investing
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- Buffett, Warren. "To the Shareholders of Berkshire Hathaway Inc. (1992)". Retrieved 14 January 2016.
- Tilson, Whitney. "Berkshire Hathaway Annual Meeting Notes (2003))". Retrieved 13 March 2016.
- Buffett, Warren. "To the Shareholders of Berkshire Hathaway Inc. (1989)". Retrieved 13 March 2016.
- Investopedia. The Greatest Investors: Thomas Rowe Price, Jr.
- "Growth At A Reasonable Price". Investopedia.com. Investopedia. Retrieved 5 January 2015.