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Investors commonly gravitate towards a personal strategy.
Common strategies include Value investing, Growth investing, and Dividend investing.
Investors typically gravitate toward several market strategies, including income, growth, or value.
Each style caters to different investor profiles. Income investors seek passive income from dividend payouts or other income-generating assets, growth investors seek to reap market-beating gains from companies expected to grow at an above-average level, and value investors look for discounted market opportunities.
Let’s take a closer dive into each strategy.
Income Investing
Income investing is all about reaping passive income. Those who follow this style typically invest in dividend-paying stocks, bonds, real estate investment trusts (REITs), and other securities that offer regular income.
Concerning individual stocks, the elite group of Dividend Aristocrats has long been a favorite among income-focused investors. To join the elite Dividend Aristocrats group, companies must be part of the S&P 500 and increase their dividend payments for at least 25 consecutive years.
A 25-year streak of increased payouts is no easy feat, owing to these companies’ abilities to operate reliably in the face of many economic environments over the years. A few famous examples of Dividend Aristocrats include Johnson & Johnson and Exxon Mobil.
Growth Investing
Growth investing is centered around targeting companies expected to grow their earnings and revenues at an above-average level. It’s a development that commonly follows through to share outperformance.
These companies commonly, especially in their early days, reinvest their earnings back into the business for expansion. Many are at the forefront of innovation, developing new technologies or disrupting traditional industries with new business models. A great example of this has been NVIDIA (NVDA - Free Report) over the last year or so, with Tesla (TSLA - Free Report) a better example of the last decade.
It’s worth noting that these high-growth companies generally trade at rich valuation multiples, with investors having to pay a premium to obtain exposure. The strategy can also easily be more volatile than others, as the long-term picture can change rapidly and is always evolving.
Value Investing
Value investing is centered around jumping on stocks trading at a discount, with the idea that the market will eventually ‘catch up’ and recognize their true value, which can lead to serious gains. After all, we all enjoy a good deal.
These stocks are typically priced lower than their peers in terms of valuation ratios like price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S), among others. In addition, many value stocks are associated with companies with strong fundamentals, such as steady revenue streams, solid balance sheets, and consistent cash flows.
Still, the strategy requires a long-term investment horizon, as it may take a significant amount of time until investors ‘catch up’ and realize the stock’s intrinsic value. The strategy requires patience and a contrarian mindset, as value investors often buy when others are selling.
Bottom Line
There are many investing styles deployed, with some of the most common being income, growth, or value-oriented. Income investors seek steady payouts, growth investors seek companies expected to grow at an above-average pace, and value investors seek deals hidden in plain sight.
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Breaking Down the Big 3 Investing Styles
Key Takeaways
Investors typically gravitate toward several market strategies, including income, growth, or value.
Each style caters to different investor profiles. Income investors seek passive income from dividend payouts or other income-generating assets, growth investors seek to reap market-beating gains from companies expected to grow at an above-average level, and value investors look for discounted market opportunities.
Let’s take a closer dive into each strategy.
Income Investing
Income investing is all about reaping passive income. Those who follow this style typically invest in dividend-paying stocks, bonds, real estate investment trusts (REITs), and other securities that offer regular income.
Concerning individual stocks, the elite group of Dividend Aristocrats has long been a favorite among income-focused investors. To join the elite Dividend Aristocrats group, companies must be part of the S&P 500 and increase their dividend payments for at least 25 consecutive years.
A 25-year streak of increased payouts is no easy feat, owing to these companies’ abilities to operate reliably in the face of many economic environments over the years. A few famous examples of Dividend Aristocrats include Johnson & Johnson and Exxon Mobil.
Growth Investing
Growth investing is centered around targeting companies expected to grow their earnings and revenues at an above-average level. It’s a development that commonly follows through to share outperformance.
These companies commonly, especially in their early days, reinvest their earnings back into the business for expansion. Many are at the forefront of innovation, developing new technologies or disrupting traditional industries with new business models. A great example of this has been NVIDIA (NVDA - Free Report) over the last year or so, with Tesla (TSLA - Free Report) a better example of the last decade.
It’s worth noting that these high-growth companies generally trade at rich valuation multiples, with investors having to pay a premium to obtain exposure. The strategy can also easily be more volatile than others, as the long-term picture can change rapidly and is always evolving.
Value Investing
Value investing is centered around jumping on stocks trading at a discount, with the idea that the market will eventually ‘catch up’ and recognize their true value, which can lead to serious gains. After all, we all enjoy a good deal.
These stocks are typically priced lower than their peers in terms of valuation ratios like price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S), among others. In addition, many value stocks are associated with companies with strong fundamentals, such as steady revenue streams, solid balance sheets, and consistent cash flows.
Still, the strategy requires a long-term investment horizon, as it may take a significant amount of time until investors ‘catch up’ and realize the stock’s intrinsic value. The strategy requires patience and a contrarian mindset, as value investors often buy when others are selling.
Bottom Line
There are many investing styles deployed, with some of the most common being income, growth, or value-oriented. Income investors seek steady payouts, growth investors seek companies expected to grow at an above-average pace, and value investors seek deals hidden in plain sight.