What's the difference between investing for growth and investing for value?
Put simply, when you invest for growth you're investing in companies which have greater potential to grow. They tend to be innovative and are expected to grow at a faster rate. People tend to pay a premium for growth stocks because they have higher price to earnings ratios, which means they cost more compared to their relative value. They tend to have higher volatility and uncertainty and a longer time horizon. Companies don't just grow or double in value overnight.
When you invest in value stocks, you're choosing companies which are out of favor with the market for one reason or another. You're hoping that eventually the value of these undervalued stocks will grow to their true potential. These are typically established companies with solid fundamentals which happen to be out of favor at the moment and growing at a slower pace. They tend to offer higher dividend yields which makes them attractive to income investors (such as us at Providence Financial).
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