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102 Don’t Make Me Say I Told You So

Growth Investing

Growth investing is a philosophy based on a conviction that
a stock’s earnings potential, not its current price-to-earnings

valuation, is the best guide to judge how that stock will do in the
future. Growth managers tend to look for companies that they

believe will have above-average earnings growth in the future,
no matter what happens to the economy as a whole. The most

basic form of growth investing is to invest in smaller companies
in the hope that these companies will experience high growth

in the future. Growth investors are looking at the stock based on
future, rather than current, earnings and profits.

Growth investing is generally considered riskier than value
investing, though it could be argued that growth investing

is just another type of value investing. Instead of looking for
companies that are undervalued relative to their assets and

current earnings, as value investors do, growth investors look
for companies whose future prospects and earnings are being

undervalued by the market. Because the stocks in growth
funds tend to be expensive, meaning they have a high price-to-

earnings ratio, growth investing is generally considered riskier
than the value investing style.

Chapter 3: You Must Have Growth In Your Portfolio