Value investors want to buy stocks for less than they’re worth. If you could buy $100 bills for $80, wouldn’t you do so? ~ Motley Fool
Most public equity stocks are classified as either value stocks or growth stocks. Generally speaking:
- A value stock trades for a cheaper price than its financial performance and fundamentals suggest it’s worth.
- A growth stock is a stock in a company expected to deliver above-average returns compared to its industry peers or the overall stock market.
Value stocks generally have the following characteristics:
- They typically are mature businesses.
- They have steady (but not spectacular) growth rates.
- They report relatively stable revenues and earnings.
- Most value stocks pay dividends, although this isn’t a set-in-stone rule.
Growth stocks generally have the following characteristics:
- They increase their revenue and earnings at a faster rate than the average business in their industry or the market as a whole.
- They developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries.
- They grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process.
Regardless of the category of a stock, economic downturns present an opportunity for a value investor. The goal of value investing is to scoop up shares at a discount, and the best time to do so is when the entire stock market is on sale.
References:
- https://www.fool.com/investing/stock-market/types-of-stocks/value-stocks/
- https://www.fool.com/investing/stock-market/types-of-stocks/growth-stocks/
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