What is growth investing?
Growth investing is an investment strategy where, compared with lower-risk strategies, we would expect greater returns given that it involves taking on additional risks. More specifically, it involves investing in growth shares, in other words young companies whose profits are expected to increase at an above-average rate compared with their sector or the market as a whole. Growth investing is potentially very appealing to many investors seeing as buying shares in up-and-coming companies can lead to impressive returns, provided the companies are actually successful. Seeing as very few of these companies are tried and tested, growth investing is often associated with a greater risk. This is because you as an investor have no guarantee that the company will obtain sufficient debt capital, that it will reach the break-even point, that its business model will be a success on the market, or that it will be able to bear the financing costs. The opposite strategy to growth investing is value investing. Value-oriented investments are investments that appear undervalued, and tend to be in little demand. Investors who pursue a value investing strategy are often drawn to these investments based on the assumption that the market will recognize their value over time, meaning their price will increase. A person who opts for this investment strategy will select shares that appear undervalued on the stock exchange.