Investing 101: Growth Investing

Growth investing is a style of investment strategy focused on capital appreciation.

A growth investor is an investor who wants to own a piece of the fastest-growing companies and won't mind paying a hefty price for the privilege.

Growth companies are organizations that have experienced rapid growth. Companies like Tesla, Amazon, Microsoft and so on. Growth companies rarely pay dividends as they plow back their earnings right back into the business and growth investors don't expect growth companies to pay dividends.

Growth investors also tend to watch out for younger companies that are poised to expand, expecting to make a profit when stock prices rise.

If you want to be a growth investor:

  1. You have to establish your overall investment strategy and see if growth investing fits well with your financial goals.
  2. You must pay close attention to company earnings.
  3. You should look for companies that have demonstrated strong growth over the past several years.
  4. You have to rely on capital gains for your money to grow rather than on dividends (don't forget taxes).
  5. You watch for indicators of future performance, especially how it compares to past performance.

Here are some questions you should ask as a growth investor when looking to buy stocks in a company

  • What are the company's projected earnings during the next five years? During the next ten?
  • Is management controlling costs?
  • Are there areas into which the company can expand to enhance revenue?
  • Is the consumer audience for the company's products growing? At what rate?
  • What is the company's market share compared to five years ago?
  • Is the stock price trending upward? Can it double in five years?

Always remember that having an investment strategy is very key in deciding if growth investment is for you.

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