Growth investing

Definition

Growth investing is an investment strategy focused on buying shares in companies that are expected to grow at an above-average rate compared to other companies. This approach targets stocks of companies with strong potential for future growth, even if their current earnings are lower or not yet profitable. Investors using this strategy often look for businesses that show promising innovation, strong management, and a competitive edge in their markets.

5 Must Know Facts For Your Next Test

1. Growth investing often involves higher risk compared to other strategies, as it relies on future growth projections that may not materialize.
2. Investors typically look for companies with strong revenue growth rates, innovative products or services, and robust market demand.
3. This strategy can lead to significant capital appreciation over time, making it appealing for long-term investors.
4. Growth stocks may not pay dividends, as companies often reinvest profits back into the business to fuel further growth.
5. The technology sector is often a prime focus for growth investors due to its rapid advancements and potential for high returns.

Review Questions

• How does growth investing differ from value investing in terms of strategy and expected outcomes?
  • Growth investing focuses on identifying companies with high potential for future earnings growth, while value investing seeks undervalued stocks based on their current price relative to intrinsic value. Growth investors are willing to pay a premium for stocks they believe will outperform in the future, accepting higher risk for potentially higher returns. In contrast, value investors look for bargains in the market and prioritize current financial performance, seeking stable returns over time.
• Discuss the potential risks associated with growth investing and how they can impact philanthropic fund management.
  • The potential risks of growth investing include market volatility and the possibility that anticipated growth may not occur. For philanthropic fund management, this means that while aiming for high returns to support charitable activities, there is also a risk of losing capital during downturns. Fund managers must balance the desire for aggressive growth with the need for financial stability, ensuring that funds are available for fulfilling their mission even in uncertain market conditions.
• Evaluate the implications of focusing on growth investing within a philanthropic context and how it aligns with long-term sustainability goals.
  • Focusing on growth investing in philanthropy can drive significant capital appreciation, which can enhance the financial resources available for social impact initiatives. However, it requires a strategic approach to ensure that high-risk investments align with the organization's long-term sustainability goals. By selecting companies that not only promise financial returns but also contribute positively to society—such as those focused on renewable energy or social innovation—philanthropic organizations can leverage growth investing as a means to both generate funds and promote societal change.

Related terms

Value Investing: An investment strategy that involves picking stocks that appear to be undervalued in the market, with the belief that they will eventually provide a good return.

Dividend Growth Investing: A strategy focused on investing in companies that not only pay dividends but also have a history of increasing those dividends over time.

Market Capitalization: The total market value of a company's outstanding shares, used to categorize companies into different segments like small-cap, mid-cap, and large-cap.