Growth investing is an investment approach that focuses on identifying and securing securities that exhibit the potential to increase and grow at a rate above the market or industry average. The idea is to purchase shares in these types of securities while the price is still relatively low, hold on to the securities for as long as they continue to produce above average returns, then sell them just before this upward movement begins to level and eventually decline. While growth investing is often associated with long-term investments, the approach can also be utilized with short-term investment schemes.
There are many different types of investments that can be part of a growth investing strategy. One of the more common examples is that of small companies that have managed to compete successfully in a larger market, and are now poised to enter into a period of expansion. If the investor evaluates all the relevant factors surrounding this expansion, and determines there is a good chance that the expansion will result in significant growth in market share and earnings, he or she may choose to purchase shares of that company’s stock. This is true even if projections indicate that the value of the shares may remain stagnant during the early stages of the expansion, but respond favorably to the increase in earnings that are generated once the expansion is well underway.
Emerging markets are also often worth consideration when plotting a growth investing strategy. Here, the idea is to identify companies that will come to dominate that market, generating earnings that are significantly higher than the competition. By purchasing stock early in the process, the investor is positioned to benefit as that company goes on to capture more of the emerging market share and thus generate more earnings that in turn increase the demand for its stock.
Growth investing can also work very well in established markets. This is especially true if the investor identifies some emerging set of circumstances within the marketplace that will cause the earnings of one or two companies in that market to increase significantly. By accurately identifying those factors, and correctly relating them to those companies, the investor can execute trades that secure stock in those companies, and eventually earn a significant return as those businesses begin to enjoy increased earnings from their production efforts.
While a growth investing strategy may yield returns in a short period of time, many investors who use this strategy focus on investment opportunities that will provide profits for an extended period. Doing so can enhance the stability of an investment portfolio, effectively providing a foundation that allows the investor to also consider riskier ventures when and as desired. By varying the types of growth investing opportunities to include several different types of industries operating in several different markets, the investor further decreases the potential for incurring losses that cripple the portfolio, since not all the investments are related to one specific market or industry.