INTRODUCTION
What is a securities market? A security, in its simplest form, is a financial asset or instrument
with value that may be purchased, sold, or are bought and sold by individuals and organizations.
✔ The securities market is an economic institute where sale and purchase transactions of
securities between subjects of economy take place according to demand and supply. These
can be broken down into different types based on what is being traded. They are also
differentiated by structure
✔ Marketable securities are investments that can easily be bought, sold, or traded on public
exchanges. The high liquidity of marketable securities makes them very popular among
individual and institutional investors
Examples of security market
Debt, equity, hybrid, and derivative securities are the four types. Stocks, bonds, options, mutual
funds, and ETFs are a few of the most prevalent types of securities. And under these security
markets, they also use investment strategies to maximize returns and manage risks effectively. One
of the prevalent investment strategies they use is growth investing.
Growth Investing Strategy
Every time we see or hear about an investment, we also consider the risk involved. We constantly
consider the best investment plan to use in order for our investments to be secure and profitable.
Growth investing is an investment style and strategy that is focused on increasing an investor's
capital. Growth investors typically invest in growth stocks—that is, young or small companies
whose earnings are expected to increase at an above-average rate compared to their industry sector
or the overall market.
For many investors, growth investing appears to be intriguing because it can result in
spectacular profits (as long as the companies are successful) by buying stakes in fresh, developing
businesses. Such businesses, though, are sometimes quite risky because they haven't been around
very long. Growth investors focus their efforts on making investments in start-up and small
businesses that they predict will do better than the companies they invest in in the years to come.
Although it carries a high level of risk, the potential for huge profits attracts investors.
Pros and cons of Growth Investing Strategy
Pros
✔ provide a high rate of return as a long-term investment option.
✔ do not always require a huge capital investment
✔ capital appreciation
Cons
✔ Growth stocks are among the high-risk stocks, unsuitable for investors who want low-risk
investments
✔ There is virtually no return or negligible return from growth stocks in the short term.
✔ Zero Dividends
PRINCIPLES OF GROWTH INVESTING
The principles of growth investing involve seeking stocks with the potential for significant future
growth, this includes:
1. A large and expanding market opportunity - The greatest growth stocks move
their top line higher at a double-digit rate for decades. That’s a nearly impossible feat
to pull off unless the company is attacking a massive market opportunity.
2. A durable competitive advantage - This is a company’s ability to maintain its
competitive advantage over its rivals for a long period, thus keeping its profits
protected from the forces of capitalism.
3. Financial resilience - The economy is inherently unpredictable, so you can bet that
sooner or later every company will face hard times. That’s why it makes sense to
strongly favor growth companies that can fund their future growth needs with
internally generated profits instead of being dependent on functional financial
markets.
4. A great corporate culture - All growth businesses will need to bring on an endless
stream of talented employees over time to enable them to meet the demands of their
customers. However, the competition for top talent has become fierce, so it is
critically important for a company to be able to retain its key employees for long
periods of time and attract high-caliber new ones. That’s why having a great company
culture in place is critically important.
5. Talented leadership with skin in the game - The final thing to look for in a great
growth stock is a CEO who is deeply committed to the company’s mission and is
highly incentivized to make the business a success. Often times these leaders are also
the founder or co-founder of the business and remain heavily invested in the
company’s success.
METHODOLOGY USED IN GROWTH INVESTING
Growth investing is a stock-buying strategy that focuses on identifying companies with high
growth potential. It involves a comprehensive methodology that includes analyzing a company's
financials, evaluating the management team, considering competitive advantages, and analyzing
growth prospects. When it comes to assessing a company's financials, growth investors look for
strong revenue and earnings growth, as well as positive cash flows. They also consider factors
like profit margins, return on equity, and debt levels to gauge the financial health of the
company.
Evaluating the management team is another crucial aspect of growth investing. Investors look for
experienced leaders who have a track record of successfully executing growth strategies. The
management team's ability to innovate, adapt to market changes, and allocate capital efficiently
is also taken into account. Considering competitive advantages is essential in growth investing.
Investors analyze a company's unique selling proposition, barriers to entry, and market share to
determine its ability to maintain growth and outperform competitors. Factors like intellectual
property, brand recognition, and network effects play a significant role in this evaluation.
Analyzing growth prospects is the final step in the methodology. Growth investors assess a
company's industry trends, market size, and potential for expansion. They also consider any
upcoming catalysts or disruptive technologies that could impact the company's growth trajectory.
This analysis helps investors identify companies with sustainable long-term growth potential.
HISTORY PERFORMANCE
A review of the annual performance of growth and value stocks within the overall market since
2001 reveals long periods when growth stocks outperformed as well as years when value stocks
provided outstanding returns. Specifically, from 2002 through 2006, the S&P 500 Value Index
outperformed the S&P 500 Growth Index. In 2007, the styles switched leadership, with growth
stocks regaining the top title, outperforming their value peers in 10 of the 13 years through 2019.
However, the performance of growth investing has varied over time, with periods of significant
outperformance as well as periods of underperformance. Historically, growth stocks, and thus
growth investing strategies, have outperformed during bull markets and periods of economic
expansion when investors are optimistic about the future. During these times, investors are
willing to pay higher valuations for companies with strong growth potential.
The first shows the 2000s Technology Bubble being burst. Prior to this period, growth stocks
(technology stocks) had substantially outperformed value stocks, but when that bubble ultimately
burst, growth stocks then severely underperformed. Heading into the Financial Crisis, value
stocks (led by financials) were outperforming, and then have underperformed ever since. The
last highlighted section shows growth stocks again outperforming to a high degree (which is
shown by the parabolic slope of the orange line during that period). As shown in the prior chart,
the last 6 months have been led by value stocks, which has not happened much, if at all, for the
last 10 years.
One of the most notable periods of growth stock outperformance was during the late 1990s.
Many technology and internet-based companies experienced rapid growth in their stock prices,
leading to substantial gains for growth investors. However, this eventually burst in the early
2000s, leading to a significant market downturn and losses for many growth investors.
In the years following, value investing (which focuses on undervalued stocks) outperformed
growth investing for a period. Value stocks performed well during the mid-2000s, especially in
sectors like finance and energy. This trend reversed again in the late 2000s and early 2010s when
growth stocks, particularly in technology and healthcare sectors, began to outperform once more.
In recent years, especially in the 2010s, growth investing experienced a significant resurgence,
driven largely by the performance of technology companies such as FAANG stocks (Facebook,
Apple, Amazon, Netflix, and Google's parent company, Alphabet). These companies exhibited
strong earnings growth, leading to substantial gains for growth investors.
REFLECTIONS:
Jhay Ann Bautista
I have come to understand that growth investing involves putting money into companies that are
expected to grow rapidly and that offer the potential for substantial profits. This strategy focuses
on small businesses with high earning potential, often in sectors like technology or healthcare.
Although it can lead to significant gains, conducting this research also helped me understand that
this kind of investment strategy is kind of risky compared to other investment strategies. These
insights guide us to choose companies that are not just good for today but also in the future,
which would make our investments more fruitful and promising.
John Francis Dimaano:
Growth investors focus on stocks that have the potential for significant future growth, often in
high-growth sectors such as electric vehicles, cloud computing and artificial intelligence.
Companies with a competitive advantage (such as unique technologies or networks) attract
increasing investors. Invest in companies that seek large and expanding market opportunities
and offer a long path to future growth. Look for companies that can maintain their competitive
advantage over time and secure profits. Favor companies that can finance growth with internally
generated profits, reducing dependence on foreign markets.
Milania Lopez:
Growth investing involves investing in companies expected to experience above-average growth
in sales, earnings, or market value. Investors prioritize companies with strong growth prospects,
innovative products, or expanding market share. Also, growth investing offers the potential for
higher returns but also carries higher risks.
Racheller Tilar:
Growth investing carries a high level of risk, so if you're searching for a low-risk investment, you
shouldn't try it. It's also crucial to watch for signs that a stock might not be a suitable growth fit.
Keep in mind that growth stocks often involve a higher level of risk than value stocks or
investments in well-established businesses.
REFERENCES AND CITATIONS:
https://capital.com/securities-market-definition
https://learn.saylor.org/mod/book/view.php?id=53733&chapterid=37838
https://www.investopedia.com/ask/answers/033015/what-are-some-common-examplesmarketablesecurities.asp#:~:text=Stocks%2C%20bonds%2C%20preferred%20shares%2C,marketable%20s
ecurities%20is%20their%20liquidity.
https://www.investopedia.com/terms/g/growthinvesting.asp#:~:text=Growth%20investing%20is
%20a%20stock,profitability%20potential%20in%20the%20future.
https://www.fisdom.com/growth-stocks/
https://www.nasdaq.com/articles/value-vs-growth%3A-a-brief-historical-view-2021-05-06
https://finance.yahoo.com/news/top-7-principles-growth-investing-141900070.html
https://anchorcapital.com/growth-vs-value-historical-perspective/
LEADER: BAUTISTA, JHAY ANN - History Performance, Finalization/Editing of the output
MEMBERS: JOHN FRANCIS DIMAANO – Principles
LOPEZ, MILANIA – Methodology
TILAR, RACHELLE – Introduction
ORMILLA, RALPH – didn’t comply on time, no contribution
Submitted to: Prof. Aliaya Delos Reyes
October 9, 2023