What is the difference between a 'growth' investment and a 'value' investment?

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M.P. Ossa eNotes educator| Certified Educator

In the current economy, people seek for ways to make money by investing in stocks that, in their opinion, will come to a much greater value in the future. This being said, the similarity of a growth investment and a value investment is that both seek to make money in the long run by purchasing and investing in the market. The difference between the two, however, is based upon the way in which they choose to purchase and invest.

The “value” investor looks for cheap stock that have market prices that do not accurately reflect the companies assets to earnings or their future price increase potential. This type of investor knows that the buying market shifts a lot and changes its mind tremendously. Hence, the value investment is a stock that has become less expensive than what it is worth in intrinsic value. It has a lower price than what it is worth. The value investor will buy this stock because he or she feels that, in the future, the market will change and this investment will reflect or regain its actual value in an increase in its price.

The “growth” investor takes the opposite approach and looks for stocks that are priced above their intrinsic value; their market price is higher than what they are presently worth. These are very often new companies that are turning all their profit back into the company to spur growth at an accelerated rate; so these companies won't offer dividends. The principal at work is that growth in earnings/revenue is expected to show up in increased valuation and increased market price.