Growth Investing — investing in growth
What is growth investing, how investing in growth works and how to choose growth companies. Comparison with value investing.
What is growth investing?
Growth investing is a strategy of buying stocks of companies that grow faster than the market — in terms of revenue, profits, or market share. A growth investor pays a higher price for a company, counting on dynamic growth to justify this valuation in the future.
Characteristics of growth companies
- Fast revenue growth — 15-30%+ annually
- Profit reinvestment — instead of paying dividends, the company invests in development
- High valuation — P/E and P/S above market average
- Innovative business model — new technologies, changing markets
- Large addressable market (TAM) — potential for further growth
Typical examples: technology companies (Nvidia, Amazon, ASML), biotech, fintech.
Growth vs Value
| Feature | Growth | Value |
|---|---|---|
| Valuation | High (expensive) | Low (cheap) |
| Dividend | Rarely | Often |
| Revenue growth | Fast | Stable/slow |
| Risk | Higher | Lower |
| Best periods | Bull markets, low rates | Bear markets, recovery |
In practice, a well-diversified portfolio contains elements of both strategies.
How to choose growth companies?
Key metrics to analyze
- Year-over-year revenue growth — look for stable, repeatable growth
- PEG ratio (P/E ÷ profit growth rate) — PEG < 1 suggests growth is undervalued
- Operating margin — growing margin is a good sign
- Rule of 40 (for SaaS) — revenue growth + operating margin > 40%
Risks
- Multiple compression — if growth slows, valuation can drop dramatically
- Lack of profits — some growth companies don't generate profit yet
- Interest rate sensitivity — higher rates reduce the value of future profits
Growth investing and ETFs
You don't have to pick individual companies:
- iShares MSCI World Growth — global growth companies
- Invesco QQQ — 100 largest NASDAQ companies (strong growth bias)
- iShares S&P 500 Growth — American growth companies from S&P 500
How Freenance can help
Freenance allows you to track what share of your portfolio consists of growth vs value companies. You'll see if your exposure matches your planned strategy — and how individual segments affect your overall portfolio performance.
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