A Growth Investing Strategy Grows Your Assets

"I made A TON of money using a growth investing strategy."

An acquaintance once told me that...so naturally, I asked him to show me what he did.

He proceeded to tell me about all the hours he spent pouring over financial statements, looking for companies that had the best chance of long term earnings growth.

A great start, but unfortunately that is when the story started to fall apart. All it took was a few strategy related questions.

Growth investing is a type of decision-making process, but it is NOT a strategy.

What is a Growth Investing Strategy?

Let's break it down. From my page on growth investing, we know that:

  • Growth investing is the decision-making process you use to buy shares in companies with above-average growth in their financial metrics

Now let's add strategy to the mix.

  • "Strategy" refers to a high level plan to achieve goals under uncertain conditions.

So a "growth investing strategy" is a high level plan to achieve your personal financial goals under uncertain conditions. In this case, your personal finance goals are to increase the value of the account in your balance sheet by buying companies with above-average growth in their financial metrics.

When people say they employ an investing strategy, they're usually missing the strategy part (like my friend).

Why Use A Growth Strategy?

If you have personal finance goals based on increasing your account balance (i.e. portfolio size), then growth investing is a good strategy to use.

An investing account is an asset (located in your personal balance sheet). Since you are "growing" the size of an asset, a growth investing strategy will serve you well.

For example, if you set a goal of $1,000,000 in a retirement account by the age of 65, then a growth strategy is the main type you'll need use to reach that goal.

If you decided that you want income from your investments, then you would be creating a new entry on your personal income statement, and an income investing strategy would be ideal.

Key Elements

  • Who = The Player (You or a Broker)
  • What = The Asset (Type of Investment)
  • Where = The Account (Retirement or Non-Retirement)
  • When = The Timeframe (Days, Months, or Years)
  • Why = The Goal (Income or Growth)
  • How = The Techniques (Trading Rules and Analysis)

Rules of Thumb

Who = The Player (You or a Broker)

  • You (via Discount Broker)
  • Broker (Full service Broker)

What = The Asset (Type of Investment)

  • An asset class with high volatility (Beta value >1)
    • High rate of change in a short period of time, which is what you want for a growth strategy

Where = The Account (Retirement or Non-Retirement)

  • Retirement
    • After Tax
      • Discount or Full Service
    • Tax Deferred
      • Discount or Full Service
  • Taxable / Non-Retirement
    • Discount or Full Service

When = The Timeframe (Days, Months, or Years)

  • Typically Short Term (< 1 Year)

Why = The Goal (Income or Growth)

  • Growth Strategy (High Volatility, Shorter Term)

How = The Techniques (Trading Rules and Analysis)

  • Fundamental criteria
    • Financial Statement Analysis
    • Fundamental Investing Techniques
  • Technical criteria
    • Technical Analysis
    • Technical Investing Techniques
  • Personal criteria
    • Personal Finance Goals
    • SMART Goals
  • Market criteria
    • Macro trends