Essay Example on Investment Styles

Value investing is an approach that is frequently used at the moment by individual investor portfolio. The spirit of value investing is that any investment should be worth considerably more than what the investor needs to pay for it. Graham defines value investing as a rational; disciplined approach that assists navigate the investment which is dominated by unjust emotions, speculations momentum, and ever-changing market environment. The primary basis is that fundamental value of the financial security can be measured and is stable irrespective of what the market does on it. Value investors require being a little more clever in their means of recognizing, measuring and defining value. Also, value investing approach focuses on the concept of an intrinsic value which is justified by the assets of the company, dividends, and financial strength. Concentrating on value, Graham felt that it assists in preventing investors from being misled by misjudgment which is frequently made by the market during periods of euphoria (Asness).

Growth investment is an investment style which focuses on how an investor grows. Growth investors are mainly attracted to companies which are expected to grow faster either by revenues or profits. As growth is important, organization reinvest earning on themselves with the aim of expanding regarding equipment or acquisition. Growth investors frequently call investing a capital growth strategy because investors pursue to exploit their capital gains even (Chan).

There are various investment styles that investor might adopt; however, they do not require to use all of them for them to optimize the stock portfolio returns. Even though many investors prefer using more than one investment style to diversify their risk, concentrating on one investment style might also be advantageous. Every investment styles come with its risk, therefore, when an individual uses one investment style, he/she will be limiting the risks associated with other investment style and thus focusing on that one style of investment. Focusing on one style means that proper comparison has been made between that investment style against other. For example, in value investing, growth companies offer higher upside potential and hence are riskier. There is no guarantee that the investment of the company will be successful. Prices always swing in a greater in growth stock and hence such style is suitable for risk-tolerant investors. On the other hand, if someone settles on value investing style, risks involved in another investment style is mitigated. A value investor aims to trade at a share price which is regarded a bargain, and this will recognize the value of the company as time passes by and prices will rise. Also, using one investment style helps investors to optimize their portfolios since the investor can choose the proportions of different assets to hold in a single portfolio and this makes the investor optimize the stock portfolio returns

The essay has defined what value investing is and gone forward to discuss about growth investment. The essay has further provided reasons why investors can remain successful after investing using a single investment style. Even though returns are slow as compared to using more than one investment style, the risk involved is less and for long-term investment, using one style of investment is worthy. Investors are capable of concentrating more on risks involved, and in the long term, they will be able to implement mitigation strategy.

Work Cited

Asness, Clifford,. "Fact, fiction, and value investing." The Journal of Portfolio Management 42.1 (2015): 34-52.

Chan, Louis KC, and Josef Lakonishok. "Value and Growth Investing: Review and Update." 2e et 3e cycles 28.2 (2011): 43.

Michaud, Richard O. "Investment styles, market anomalies, and global stock selection." (1999): 1-46.