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Growth stock investing

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Growth stock investing

There are a lot of investing approaches out there, one of which is Growth Stock Investing. Simply defined, growth stock investing means the act of buying stocks of fast-growing companies, companies that increase earnings at above-normal rates. Usually, companies become "fast-growing" when they enter a period of dynamic and swift development in their earnings, sales and cash flow.

 

When you’re a growth stock type of investor, you are paying a premium value for the fast growth of the company. You are doing so on the conjecture that this increase growth will last long enough to rationalize its actual high market price. If you enter growth stock investing, you’ll need to successfully foresee how long the company’s growth would continue. This can be determined by a number of factors which include the company’s new product development, the likely size of the new market, possible obstacles that the company would face when it enters the market, the market competition, and the cash flow return on the increased investment.


Growth stock investing has two main advantages. One is large stock price appreciation and two is compounding. When you’re a seasoned investor, you can easily take advantage of the large price move up, sell your stocks, and totally evade the time when the price of the stocks move down. Also, it is really to one’s advantage if they found a company that can generate an above-average earnings growth. Definitely the return on one’s investment would be enormous.

Nevertheless, you should be careful when investing in this type of companies. Because of the higher assessment on their stocks, the market would also have higher expectations on how good the company would earn its future profits. Moreover, the higher the stock assessments, the more advance into the future investors would be anticipating this excellent growth. By this alone, you have very big risks. Since the future cannot be accurately predicted, you are not really sure on how the company would come out after its initial rush on growth. And because of this unreliable nature of the future, a possibility exists that the stocks would become unstable as the market debates on how long the increase growth would last.


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