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An Analysis of Value and Growth Investing

In: Business and Management

Submitted By knj1206
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Pages 5
An Analysis of Value and Growth Investing

Saint Leo University

An Analysis of Value and Growth Investing
This essay will define and identify the differences between value stocks and growth stocks. It will also explain the rationale that investors use for purchasing both value and growth stocks, and will identify whether value or growth investing has worked best over the long term. In addition this essay will provide incite as to which of the two investment methods I prefer and a justification for this preference and lastly will identify a recent example of someone who can be described as a value or growth investor and describe their successfulness with the method they chose.
Value and Growth Stocks Defined According to our text, value stocks and market stocks are defined relative to their market-to-book ratios. A market-to-book ratio that well exceeds 1 indicates that the value of a firm’s assets exceeds their historical cost. As such, stocks with lower market-to-book ratios are classified as value stocks, while stocks with high market-to-book ratios are known as growth stocks (Berk, 2014, p. 28). When compared to stocks within a similar industry, value stocks may be lower priced and are considered more of a bargain, while growth stocks are more highly priced relative to those in their industry.
Purchasing Value Stocks Versus Growth Stocks There are a variety of reasons that any investor might use to purchase a particular type of stock. Most of the reasoning has to do with the ability and propensity of the investor to assume the risk associated with each type of stock. Value stocks may be having problems in the marketplace that drive their prices down. These types of stocks are riskier but value investors take on this risk because of the potential of the stocks to rally in a big way in the future once any negative economic events that have

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