Two people sat down at a coffee shop talking about investments. One said, "I invest in value stocks". The other stated, "I invest in growth stocks".
What are value stocks?
Values stock investors invest for the long term in companies that are well established and will likely stay that way. A name like Warren Buffett might come to mind when you think of someone who is a value stocks investor. His firm Berkshire Hathaway invests in companies like Verizon and Kraft Heinz Co.
Typically, investors who invest in value stocks are looking for a deal. After all, who doesn't like to buy a great name brand when it's on sale?
What does "On sale" look like in the stock market? It might look like a time when the entire market is down. Established companies are trading below their actual value. Once the market rebounds, an investor is able to benefit from "the sale".
What are growth stocks?
Growth stock investors invest in companies that they believe will outperform the market and bring handsome returns. Who wouldn't have liked to invest in Apple when its stock first offered?
Typically, growth stocks are shares of established companies that generate high revenue and reinvest it in their own growth (rather than paying dividends). Sometimes that reinvestment works out and returns more growth and therefore increases the value of each share. Sometimes it doesn't.
Typically, investors who invest in growth stocks are more comfortable with risk. They might win big, but they are also prepared to lose big. Think of the growth investor gobbling up stock in Pets.com and eventually giving up once the share price hit rock bottom.
Which type of investor are you?
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