Value or Growth Investing: the Guide for the Stock Market Novice ...

Value or Growth Investing: the Guide for the Stock Market Novice

Article by Abel Mens

If you have done some studying on investing theories before diving into the stock market, you might have come across names such as Warren Buffet, Benjamin Graham, and value investing. What I want to emphasize on in this article is how these names relate to your stock market performance and how you can learn from these famous names to become a successful investor. The first step that any investor should take before investing anywhere is to decide whether he is going to be a value investor or a growth investor.

Value investing is the technique of selecting stocks whose current market price is more than their intrinsic value. The intrinsic value of a stock is calculated by several complex methods such as the FCF (Free Cash Flow) model or the equity multiplier. For instance, if the intrinsic value of a stock is while its current market price is , it is overvalued by . In other words, the intrinsic value of the shares of a stock is the ?should-be? value of the shares. The essence of value investing is buying the undervalued shares and selling them when they are overvalued. Benjamin Graham, in this case, is known as the father of value investing. In addition, Warren Buffet, his student, is also one of the pioneers of value investing. The things that a value investor looks for in a stock are:

* low price/earnings ratio (to find out the undervalued stocks)

* Low price/cash flow ratio (to determine whether the company is spending much money on sales growth or paying back to the shareholders as dividends)

* Low price/book value ratio

* High dividend yield

Growth investing, on the other hand, refers to the strategy of buying stocks of companies that are expected to grow at a rate higher than that of the industry average. This means that the growth stock company would be concentrating its resources around business expansion instead of paying high dividends back to the investors. The things that a growth investor looks for in a stock are:

* High earnings growth rate

* Low dividend yield

* High ROE (Return-On-Equity)

In conclusion, I should state that the decision to choose between value and growth investing should never be an emotional one based on your gut reaction. A stock could vacillate between being a growth stock to a value stock or vice versa depending on the time period concerned. However, it is not the stock that is important, rather the investing philosophy is. This is because whether a stock is a growth stock or a value stock depends on how you view its performance from a value or growth investing perspective.

About the Author

Abel Mens has been internet marketing for nearly 8 years. Come visit his latest websiteover at low voltage light bulbsand automotive light bulbs where you can find all information you need in the home.

Use and distribution of this article is subject to our Publisher Guidelines
whereby the original author?s information and copyright must be included.

Source: http://www.juanboulter.com/value-or-growth-investing-the-guide-for-the-stock-market-novice

conrad murray jack del rio jack del rio heaven is for real chapter 11 bankruptcy chapter 11 bankruptcy big ten acc challenge 2011