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Value Investing vs Growth or Momentum Investing

Updated on December 11, 2014

What are Value, Growth and Momentum Investment Strategies and Which is Best?

Value and growth or momentum investment strategies are quite different approches to stock-picking when investing in the stock-market used by different types of investors and traders, but what is the difference and which is best? I have used both methods and under different situations both can be effective, but I shall discuss here the pros and cons of each.

Value investing is exactly what it sounds like: picking shares based on their value; how cheap they are relative to other shares and the market (usually based on Fundamental Analysis - see below) perhaps because they pay high dividends. Growth investing is based on shares that have potential to grow or are growing. Momentum investing or trading is a kind of Growth investing based on the current upwards direction of the stock continuing. i.e. it has momentum. This is usually based on Technical Analysis (see below)

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

What is Value Investing?

Value investing involves buying stocks and shares that you think are inexpensive compared to other stocks and to the market. To determine this you must do some maths to calculate ratios such as the PE (Price Earning ratio) the percentage yield (estimated looking forward and actual looking backwards) and various other indicators to determine if the dividend is likely to be paid. If a stock is cheap and there is no sinister reason for this, eventually the market will notice and the price will go up. If it doesn't you still receive a good healthy yield in the mean-time. For a full discussion of how to calculate the ratio and interpret the maths please see this article about Fundamental Analysis...

Growth and Momentum Investing/Trading

Growth investment involves stock-picking based on the perceived potential for a stock to increase in value: e.g. small-cap companies with growth potential or new products; companies with expansion potential or takeover/merger targets. Growth stock usually don't pay a large dividend so your profit will be mostly from capital gain rather than income, so you have to get the stock-picking right. If the price goes down there are no dividends to cushion the blow. The way to identify growth targets is to read to the financial pages and the company reports, but many people also use Technical Analysis or Charting to identify Momentum stocks: stocks that are going up and should keep going up in value. See this article on Technical Analysis to see the various methods involved

Animal instinct seems to favour momentum style investing. If you have ever been on safari you will know that if you meet a lion you should stand very still. If you run he will chase you and eat you. It would be easier for him to wander over and just eat you before you move, but he won't. The same is true of investing: most investors will chase shares that are moving up fast, which makes them move even faster. A low price share that isn't moving will be ignored. If you chase the fast moving shares you may make a lot of money very quickly or buy just before it crashes (sorry that's where my lion analogy breaks down - maybe that's when another lion eats your lunch) If, unlike the other "lions" you wander over to the stationary, uninteresting shares and eat them you get the same thing for less effort (i.e. money)

So Which is best: Value OR Growth Investing?

Good question...

Of all of the world famous investors of all time, most have been Value Investors: Benjamin Graham was the inventor of modern value investing and was Warren Buffett's (the current best investor of all time) mentor and the British equivalent, Anthony Bolton or Fidelity Investments also follows a similar approach. Value investing perhaps requires more maths, but is still relatively easy to understand and over the very long term does tend to give positive results. Growth Trading is perhaps more fun, but can also be riskier.

Which is Best: Value of Growth Investing?

Which is Best: Value of Growth Investing?

Value Investing is best: Live off the dividends

Value Investing is best: Live off the dividends

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    • anonymous 4 years ago

      Wish I had done at least one of them....my investments all went to people in need....I would guess that's value!

    • Andy 5 years ago from London, England

      Growth investing is more fun, but value investing is more reliable and safer. Value shares are, after all, cheap compared to their earnings and therefore unlikely to drop dramatically in price like a growth stock can, when it stops growing. They also usually keep paying dividends even if they don't increase in value.

    Growth Investing is best: Buy low, sell high

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      • anonymous 5 years ago

        all strategies are best, but it depend on based perspective we rely on!

      • TradingTips 6 years ago

        Growth is good, and can be achieved by technical analysis (momentum), and even by value stocks, which are undervalued, and they grow in price.

      • Mary Norton 6 years ago from Ontario, Canada

        I have a small amount that I play with in the stock market that gives me so much enjoyment. This is more fun for me. Although most of our investments would be in value. I enjoy picking winning penny stocks.

      Money!

      Money!
      Money!

      Please Leave Some Feedback

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          maurinehmontalvo8 3 years ago

          Thanks for the book recommendations!

        • profile image

          anonymous 4 years ago

          Okay, you know I'm a bit lost on this stuff, just have never had extra to dip my toe into the markets and have been living on the same shoe string for years....even when I made more for a while, the extra went to help loved ones and that's the only way I've ever invested. Well done sir!

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          twing-kewl 5 years ago

          Great advice thanks for sharing!

        • besttechgadgets profile image

          besttechgadgets 5 years ago

          This is solid advice, and a great description... I have moved more and more toward solid dividend paying stocks because it makes so much sense for me long-term. Companies like that have growth spurts as well, but the steady dividend (often increasing) is a solid choice. Great lens.

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          waltergivensvig 5 years ago

          Want to know why buy gold? Visit our website www.verticalintegrationgroup.com for more information on precious metals investment.

        • profile image

          waltergivensvig 5 years ago

          Want to know why buy gold? Visit our website www.verticalintegrationgroup.com for more information on precious metals investment.

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          buntyross 6 years ago

          you have provided a very good information on value investment and growth investment. This was very helpful information for investing money and this will definitely earn much more money than doing a fixed deposit or term deposit in a bank which give some amount of interest on your deposit.

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          jackieb99 6 years ago

          Value investing for me...I love it when a company like BP or Goldman Sachs gets hit with something bad! It's time to buy.

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          TradingTips 6 years ago

          This is very interesting, as the undervalued stocks can be hard to find unless you're really good at fundamental analysis, and require good research.

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          anonymous 7 years ago

          Great information on this page Andy. Once again I am your student.

          Thank you for stopping by to wish me a nice holiday for Christmas.

          I have held you in my heart thoughts and hope yours was lovely.

          Hanging up my Squid Angel wings on New Years Eve. It takes time!

          There is some angel dust sprinkled here, and I'm going to feature it;

          I need to update that lens anyway and this will be a good one.

          Happy New Year my Friend,

          Susie x

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          Sandy Mertens 7 years ago from Frozen Tundra

          You know your money!