To invest is to allocate money in the expectation of some benefit/return in the future. In other words, to invest means owning an asset or an item with the goal of generating income from the investment or the appreciation of your investment which is an increase in the value of the asset over a period. Two of the most well-known investing strategies are growth investing and value investing.
When choosing stocks, a growth investor primarily considers its potential for future growth. These investors target newer or smaller companies with earnings that are expected to increase rapidly in comparison to other companies within the industry or the overall market. Characteristics of a growth stock include:
- High price-to-earnings ratio
- Little-to-no dividend yield
- Rapid current or future growth in revenue
- Chance of little-to-no profitability
Value investors primarily seek to invest in companies with present value that is underestimated by the market. These stocks are perceived by value investors as being traded for less than their intrinsic or book value. Value investors carefully analyze long-established companies in order to find these deals. Characteristics of a value stock include:
- Low price-to-earnings ratio
- High dividend yield
- Steady increase in profit