Value Vs Growth: Two approaches to stock investing
Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.
Growth or value... or both?
Which strategy — growth or value — is likely to produce higher returns over the long term? The battle between growth and value investing has been going on for years, with each side offering statistics to support its arguments. Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.
Growth stocks, in general, have the potential to perform better when interest rates are falling and company earnings are rising. However, they may also be the first to be punished when the economy is cooling.
Good companies will always trade at higher valuations. *Good under valued companies are very very difficult to find.* If a company is under valued, there has to be some problem. People are not willing to pay the premium. All PSU stocks are highly under valued because of the inherent lack of efficiency, bureaucratic labyrinth, no decision making, government interference and highly inefficient and ineffective management. *So, please don't start searching for under valued companies and think they will be multi baggars*. They will remain under valued for decades together. if you pay peanuts, you get monkeys only. Look for companies with fair valuations. Wait for market corrections. When market corrects, all stocks fall irrespective of size, quality and price. Good well managed high quality companies will fall less and will be first to rebound. *Patience and discipline are the two most important parameters for good investment and wealth creation.*
Investment Vs Trade
When it comes to wealth creation in equity market, investing and trading are the two genres of the field. However, investing and trading are very different approaches of wealth creation or generating profits in the financial market. Imagine, today, you and your friend bought equal amount of seeds to sow in your fields but you sold them to someone in a day because you could earn profit. And your friend sowed the seeds and let them grow for a few years till they gave new seeds. He sowed the new seeds and continued this for years and sold a lot more seeds eventually than were bought. By investing his seeds he would have made profit quite different than what you made by trading your seeds. This is simply the difference in investing and trading.
The advantages that accompany a stock investing mindset are numerous. All you have to do is base your bets on a business that is strong in its core offerings, is constantly innovating and adapting to customer requirements and has a solid management team backing it. Once you are sure of this, you just need to “buy right and sit tight”.
An investment approach will ensure success in a longer period of time. It will also allow you the much-needed peace of mind that traders never get in their attempts to time the market.
So analyze a company fundamentally, invest in the business, remain unperturbed by the market noise and stay invested to reap long term benefits.
My take.....You should only invest and never trade. This is the only noble piece of advice i can offer with full conviction. If you trade, one day you will destroy all your wealth. More than 95% of traders never ever make any money. You can choose your fate....
There are many powerful well run Indian and multinational companies in the Indian stock market and many good fund houses and classes of equity mutual funds in the market. Start slowly and you will soon be able to differentiate the men from the boys. As I said earlier, I will again repeat; The powerful franchises have created huge wealth for themselves and for their shareholders. Market leaders keep changing with disruptions in technology, pricing, equity investment, logistics, greed, ambition so on and so forth. The problem is stock selection and lack of patience. We want to get rich overnight the moment we think of stock market. The CAGR of around 15-16% will make you rich by the time you retire and compound your money enormously. Your money is doubling every four to five years which is huge. Once, you have substantial corpus of say 15-20 lakhs, the doubling in every 4-5 years is magic. Within the next three cycles, you will be crossing a crore. The key is to start early to have the time advantage. It is not the amount but the time which is most important. Even if you start early in life and contribute less, you have all the chances to enhance it over a period of time because of your increasing salaries, bonuses etc. But, if you start late, the chances of compounding reduces. Please remember the rule of 15*15*15. If you invest Rs 15000 per month for 15 years with an expected CAGR (rate of return) of 15%, you will generate Rs one crore. So, starting early in life is the key to wealth creation.
Diversification
Diversification is the practice of spreading your investments around, so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.
One of the keys to successful investing is learning how to balance your comfort level with risk against your time horizon. Invest your retirement nest egg too conservatively at a young age, and you run the risk that the growth rate of your investments won't keep pace with inflation. Conversely, if you invest too aggressively when you're older, you could leave your savings exposed to market volatility, which could erode the value of your assets at an age when you have fewer opportunities to recoup your losses.
One way to balance risk and reward in your investment portfolio is to diversify your assets. This strategy has many complex iterations, but at its root is the simple idea of spreading your portfolio across several asset classes. Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomach-churning ups and downs.
One can diversity the investments into equity (direct stocks or mutual funds), debt funds, Gold(around 5-10% of the corpus), FDs, various secured Govt schemes like PPF, SCSS, PMVVY, POMIS etc.
In the end, I will like to only suggest to be wise and prudent before start investing your savings. You can't exclude equity from your investment portfolio howsoever small or big it may be. That depends on your age, risk appetite, goals and passion. This is the only way of wealth creation in long term.
REFERENCES:
https://economictimes.indiatimes.com/markets/stocks/news/the-crux-of-growth-stocks-vs-value-stocks/articleshow/102225415.cms?from=mdr
https://www.business-standard.com/content/specials/growth-vs-value-investing-by-sidhavelayutham-founder-ceo-alice-blue-123080900595_1.html
https://www.thehindubusinessline.com/portfolio/personal-finance/growth-vs-value-the-age-old-investing-debate/article66906872.ece
https://www.youtube.com/watch?v=_18G87z6uwI
https://www.youtube.com/watch?v=Ty4dBujXRIA
DISCLAIMER : The above information is available on public domain and has been taken mostly from above mentioned websites and YouTube videos. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.
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