| It is probably the oldest debate on Wall Street, | | | | need a mixture of the two. You simply cannot |
| the debate as to whether growth stocks or value | | | | have a diversified portfolio without having both |
| stocks are the best way to invest in the stock | | | | growth stocks and value stocks, and |
| market for the average investor. No doubt this | | | | diversification is an absolute must in the stock |
| debate will continue to rage on for many years to | | | | market. |
| come as well, since there are many different | | | | Some of the best investors of all time have |
| mindsets about which types of stocks are the | | | | decided to take a hybrid approach to investing in |
| best investment. | | | | stocks, and have found great success in using |
| A growth stock is the stock of a company that | | | | such a method. Peter Lynch is probably the most |
| is expected to grow at an above-average rate | | | | successful mutual fund manager ever, and he is |
| relative to the overall market. Growth stocks | | | | well-known for his growth and value hybrid |
| typically pay little or no dividend, but generally | | | | investing style. In fact, one of my favorite |
| bring a high return on equity and reinvests | | | | investing terms was made popular by Peter |
| retained earnings into future capital projects that | | | | Lynch. Growth at a Reasonable Price, or GARP, is |
| will help the company be even more profitable. A | | | | all about finding stocks that are growing, but are |
| value stock is defined as a stock that is seen as | | | | still of value. The PEG ratio is extremely important |
| trading at a low level versus its fundamentals and | | | | to investors who want to find growth stocks that |
| thus is considered to be undervalued by the stock | | | | also may be trading at a reasonable price. Warren |
| market. Value stocks usually are more mature | | | | Buffet is typically seen as a value investor, but he |
| companies that pay a healthy dividend and have a | | | | certainly has added some names that are also |
| nice amount of cash on their books. | | | | growth plays through the years. |
| Have growth stocks or value stocks performed | | | | Depending on your own personal situation you |
| better historically? Here is another strongly | | | | may want to be skewed more toward growth or |
| debated topic, because both growth and value | | | | value stocks. For example, if you are young and |
| stocks have had their years where they | | | | retirement is 25 years away, you'll probably want |
| outperform in a big way, but in the long run it | | | | to take more risks and invest in plenty of growth |
| seems that the two seem to more equal than | | | | stocks. If you have very little risk tolerance, or |
| many would expect. During bull market periods a | | | | you are near retirement, you'll want to stick to |
| growth stock tends to outperform, but when the | | | | the most basic value stocks that pay a healthy |
| market and the economy contract the value | | | | dividend and allow you to sleep comfortably at |
| stocks tend to take over as the leadership group. | | | | night. In the end the investor who can build an |
| The single most important thing that an investor | | | | impressive portfolio with a combination of value |
| should understand about deciding between value | | | | and growth stocks will likely be ahead of the pack. |
| stocks and growth stocks is that you truly do | | | | |