What type of an investor are you? A bargain hunter or an aggressive risk taker? Are you an aggressive driver or a defensive one? The type of strategy that is suitable for you depends on your personality and your life situations. If you are not comfortable with risks, it does not make any sense to force yourself to invest in high risk stocks or funds.
Value investors look for bargains. They look for funds that seek stocks that are trading below the fair value of the companies. These funds buy stocks that are considered undervalued. The stocks are sold when the fair market value is reached or the stocks are considered overvalued.
The fund managers and analysts examine the balance sheets, financial statements, and cash flows to analyze the values of the target companies. Combined with their forecasts, they will be able to determine if a company is undervalued and therefore, it can be added to their portfolio.
Growth investors are looking for tomorrow’s winners. They look for funds that seek companies with potentially substantial growth. The fund managers and analysts look for companies that can generate revenues or earnings greater than the market’s expectations. Growth is all about whether a company can consistently deliver better than expected earnings. Growth is not about a company’s valuation or paying investors dividends regularly.
Which strategy do you prefer? It depends on your comfort with risks. If you can’t decide what to do, you could mix them up in your portfolio. Often than not, one will outperform the other. When you own both, it takes the worries away. You just let the market do its thing.