Investing is always a tricky business, especially when it comes to choosing between growth and value investing. With so much information out there, it can be challenging to make the right decision.
In this blog post, we will explore both strategies and help you decide which one is the best fit for you.
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| Investing |
🌱 What is Growth Investing?
- Growth investing is a strategy that aims to pick high PE stocks on the assumption that such stocks can potentially outperform the broader market in the future.
- It has gained enormous traction over the past few years, thanks to the availability of abundant liquidity.
- The popularity of growth investing peaked during the pandemic when global central banks lowered interest rates to support economic growth.
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| Growth |
🔎 What Ails Growth Strategy?
- However, as the low-interest regime retreats, high earnings growth projections have begun fizzling out.
- Additionally, stretched valuations and increased volatility amid rich valuations impact pure growth strategy.
- Increased macro headwinds like rising deficits, muted export growth, risk of US recession, and factors like near-term demand concerns and weak rural consumption are creating growth concerns for corporate India.
💰 How About Value Investing?
- As macro uncertainties and increased volatility cloud prospects of pure growth investing, investors can consider value investing, which involves buying companies trading at cheap valuations.
- The strategy works best when there is economic, liquidity, and market contraction.
- With global economic growth expected to slow in 2023 and ongoing liquidity tightening, value investing may prove a better bet.
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🌟 Best of Both Worlds: GARP Investing
- However, investors need not choose between growth and value investing. They can have the best of both worlds with Growth at a Reasonable Price (GARP) investment style.
- This strategy combines attributes of both growth and value investing and helps mitigate the risks of individual styles across market cycles.
- GARP looks at the PE ratio in conjunction with the expected earnings growth rate. Stocks that have a PEG ratio below 1 are typically shortlisted.
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| Garp strategy |
💭 Concerns Remain
- No investment strategy is foolproof, and the ability to forecast expected future growth with a reasonable degree of confidence is the key limitation of GARP.
- If the actual growth rate turns out significantly different from the expected growth rate, it will have major ramifications on stock prices.
- Underestimating future growth rates will lead to missing out on good growth stories while overestimation of growth will lead to investors getting stuck in a bad investment.
- Often, GARP stocks might not be efficient in terms of cash flow management.
🤝 The Final Verdict
- In conclusion, choosing between growth and value investing depends on individual preferences and risk tolerance.
- Growth investing is for those who want high returns but are willing to take higher risks, while value investing is for those who want lower risks but are willing to accept lower returns.
- However, with GARP investing, investors can have the best of both worlds and achieve long-term capital appreciation with a more balanced and sustainable investment approach.
So, which investment strategy are you more inclined towards - growth, value, or GARP investing? Let us know in the comments below! 💬
Thanks for reading
I hope this was helpful.
What type of investing do you prefer?
Value or Growth or GARP?
Let us know in the comments below :)
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