Investing for Growth

Critical to achieving your wealth objectives is the selection of an effective investment style. In this regard, the discerning stock picker often faces a choice between two schools of thought, namely 'value' and 'growth' investing. Generally considered opposing strategies, each holds appeal for different audiences and different times within the economic cycle.

So how can an investor identify a typical growth stock? Classic growth companies usually demonstrate a record of consistently rising profits. The challenge for you is to identify how historical profit growth is derived and to understand the factors which should ensure its continuance. For example, rapid growth may be a function of a company's success in taking a tried and tested strategy in one geographical location and applying this approach elsewhere, as successfully pioneered by Heineken. Growth status may also be derived from developing a strong brand name and excellent products, which create a dominant market position, clearly demonstrated by Coca-Cola. Alternatively, the company may establish itself as the technological standard in a sector which itself is in relative infancy, such as EMC in data storage.

Whilst such companies have delivered above average growth, the competitive reality is that this does not happen with the unfailing, year-by-year consistency that the stock market desires. High market expectations imply that a failure to produce anticipated earnings growth can generate severe disappointment and corresponding share price setbacks.

Although the theoretical premise of finding the next Microsoft holds great appeal, in reality the challenge in finding such companies is far from easy, as for every winner there are many losers.