What is a Growth Investor and Should You Become One?

There are nearly as many investment strategies as there are investors, but if your goal is asset appreciation, becoming a growth investor might just be for you.


small growing plants in soil

If you want to become a rich growth investor, here are twenty ways to win in the growth stock market.

Growth investors love a good gamble. Growth stocks often outpace the market, and the best ones can earn triple-digit returns in a short amount of time. The caveat to being a growth investor is that the companies you invest in are less mature, have smaller margins, and typically don’t pay a dividend. Thus, the stocks can be very volatile, especially around earnings season. But for a growth investor, the risks of investing in these stocks are worth the potential rewards.

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Since you’ll be investing in higher-volatility stocks it’s important to make sure you maintain a diversified portfolio. For some investors that means maintaining a majority of their portfolio in diversified funds or ETFs while using a smaller share to make investments in individual stocks. For others, it may simply mean investing in a broader portfolio (across asset-class and sector) of a larger number of individual stocks.

The Difference Between a Poor Growth Investor and a Rich One

Anybody can invest in growth stocks, but not everyone succeeds. The most successful growth investors we know follow these guidelines:

  • They stay positive, because after every tough event, our dynamic country and economy have eventually rebounded.
  • They invest in fast-growing companies that have yet to reach the point of peak perception. Frequently these will be smaller stocks, where growth potential is greater!
  • They invest in stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding.
  • They use technical market timing indicators, and when a bull market is signaled, they don’t delay, they buy!
  • They are patient, because frequently stocks don’t go up as fast as you might want them to.
  • They hold diversified portfolios, because you should never have all your eggs in one basket when growth investing. We suggest 10 stocks to provide plenty of diversification.
  • They cut losses short —the key for a growth investor is to ensure they retain enough capital to stay in the game.
  • They sell winning stocks when they lose positive momentum. They don’t wait for the company to tell them bad news, they sell first without regret.
  • They don’t seek 10% and 20% profits, they think longer term and shoot for 100%, 200%, and larger profits. As long as all the rules above apply.
  • They “average up” over time, by continuing to buy their best-performing stocks.

The Best Growth Stocks to Invest in as a Growth Investor

If you want to become a growth investor, there are other factors to look for in addition to growth. The following characteristics are most desirable when investing in growth stocks:

  • Growing revenues, ideally at a rate exceeding 15%.
  • Growing earnings, ideally at a rate exceeding 20%.
  • A good story, promising more of #1 and #2 for years to come.
  • Improving investor perception, with room for further upside as more investors learn about the company.
  • Growing institutional investor sponsorship, with room for further upside.
  • A healthy chart, indicating that investors as a whole are growing more optimistic about the stock.
  • A strong relative performance (RP) line, indicating that the stock is outperforming the broad market.
  • Ample liquidity for smooth trading (consider looking for stocks with an average trading volume of at least $20,000,000 per day).
  • A price in the double digits (or higher).
  • Capable management.

The key to becoming a growth investor is identifying fast-growing companies before the masses do. That can be tricky, since some of the best growth-stock candidates are relatively obscure. There’s a reason, after all, that the market hasn’t fully discovered them yet. If you’re beginning to research companies, using stock screeners like FINVIZ, or MarketWatch, is a great place to start looking for companies that meet some of the growth criteria above.

What else do you need to know before you become a growth investor? We’re listening for your comments below.

 

Learn the best ways to gain your own financial independence and security—get this FREE report now, 5 Steps to Your Financial Freedom, and you’ll have a solid strategy and plan for using the stock market to achieve your own financial freedom. Act now to download this FREE report today!

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