Dose of Prose
I recently took an equity research class, where I spent several weeks researching a company. At the end of the course, I presented an investment recommendation for the company based on the information I gathered. I also received my Bloomberg certification, which is a qualification that means I am certified to use a database called the Bloomberg terminal (think of it as the Finance version of Google). It has been interesting for me to dive deep into the operations and financials of a company using Bloomberg, because I’m able to gain a deeper perspective of the ins and outs of companies, from both a consumer and stakeholder point of view. As I navigate my own personal investing journey and build my portfolio, I’m continuing to learn about the industries I’m attracted to and the traits that I look for in a company. Having a baseline of how I asses the companies I invest in has been helpful to me when making investment decisions and I want to share this framework with you.
Before you start investing or even if you’ve already started investing, I highly recommend that you figure out what your investing style is or what type of stocks you want to invest in. It’s the equivalent of making a grocery shopping list and shopping for exactly what you want once you enter the store vs. walking in freely buying things, potentially overspending. In today’s post, I’m going to discuss 3 main investment styles you need to know: value investing, growth investing and ESG investing.
1) Value Investing
If you are a value investor, you seek out stocks that are undervalued in the market. This means that the stock sells for less than what it’s actually worth. Let’s say that someone wants to sell you a Gucci shirt for $10. Let’s also say that this seller has no idea what Gucci is, has never heard of it and is unaware that Gucci is a luxury brand. However, you (the buyer) know everything about Gucci and you’re willing to pay $10 because you know that it’s actually worth a lot more than what the seller is selling it for. Keep in mind that I’m not talking about counterfeit items in this case…I’m just trying to give an example where you have this luxury item that is actually worth thousands of dollars, but you’re only paying $10 for it. This is the same mentality that is rooted in value investing – value investors are looking for stocks that are undervalued. The type of companies in value investing are usually large, well-established organizations like Ford Motors or Berkshire Hathaway. Essentially, value companies are trusted companies that have been around for years.
2) Growth Investing
If you are a growth investor, you are seeking stocks that you believe will outperform the market. You want stocks that have potential – you see the stock growing quickly in the future. The type of stocks in this category can be small, mid or large size companies. A good example of growth stocks are those within the technology industry, such as Apple, Amazon, Uber, etc. Each of these companies have taken off and grown exponentially in a short period of time. If you get in early on a growth company, you’ll gain a huge payoff. Remember when one bitcoin was only worth 10 cents in 2010, and now it’s worth over $30,000? Think about the millions of dollars you would have today if you invested just $100 in bitcoin back then. This is power of growth investing!
3) Economic, Social and Governance (ESG) Investing
If you are an ESG investor, you are looking at the overall impact that a stock has in the market. ESG investors are not so focused on numbers or financial metrics to give them an idea as to whether or not the stock is a good investment, but rather, they are looking at the overall impact that the stock has on society at large. I’m not that old, but back in my day, this investment style did not exist. To this day it’s actually still very new and finance professionals are slowly but steadily becoming more accepting of it. Now, more than ever before, there is this trend of consumers wanting companies to be more transparent. Consumers want to support companies that have a triple-bottom-line approach to business, meaning that the business is not solely focused on making a profit, but is also focused on social good. Examples of stocks that fall within the ESG category are companies that focus on climate change, human rights or any corporation that has a social responsible type of purpose.
Diversify, diversify, diversify!
I’m sure you’ve heard the phrase, don’t put all your eggs into one basket, which is a smart motto to go by not only in investing but also in life. You don’t have to put yourself in a box when it comes to these investing strategies – you can implement a combination of these investment styles into your portfolio (in fact, I recommend that you do). There’s nothing wrong with diversification. Initially, I was geared mainly towards value investing…but now I’ve started to dive into growth investing. It all just depends on your priorities and preferences!
This post is short and sweet, but I hope it was helpful overall! I love breaking down high-level finance concepts in an easy and digestible way, because I’m huge advocate for financial literacy and believe everyone deserves access to financial resources. Based on what you read in today’s post, what type of investor are you? Leave a comment and let me know! If you enjoyed this intro to investment topics, feel free to check out my other blog posts on basic stock investing, startup funding, tips to make more money, budgeting basics and more on the finance section of my blog!
