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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Thursday, August 17, 2006

More on Growth and Value Stocks

Growth and Value is another method of classifying stocks or portfolios because usually they will have many aspects of one or the other. Like sectors and asset classes, it is important to know when growth is in or out and when value is in or out.

Growth stocks are stocks of companies that historically have been able to grow their businesses faster than the average company and that growth is expected to continue. Because of this growth investors are willing to pay more for these sticks than they would for value stocks relative to current earnings. They reinvest their profit to continue to grow.

Value stocks are stocks of companies that historically have had slower growth in sales and earnings than average or recently experienced some type of trouble that caused the stock price to decrease. Investors, like Warren Buffet, see value companies to be turn-around opportunities where a change in management or business strategy could increase its potential for growth.Since value companies are not expected to grow quickly their yield will be higher to retain investors.


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