The Boring Invstr - Your Simple, Digestible Weekly Investing & Finance Newsletter

Welcome Back to The Ninth Edition of The Boring Invstr!

As I said last week, I am covering five of the most common and successful investing strategies. You will get a glimpse into these strategies and see how it works, what metrics to look at, and who uses them.

This week's strategy is growth investing.

What is Growth Investing?

Growth investing is a type of investment strategy that focuses on stocks expected to grow faster than the market and their sector competitors. Growth investing is all about predicting how well a company will perform in the future.

Although, It may be challenging to find potential growth stocks with stellar fundamentals. Many of these stocks use resources, often debt, to develop their innovative solutions. The best-case scenario is finding a company displaying strong fundamentals relative to a company's sector.

It is possible to have established companies that continue to innovate while maintaining strong fundamentals. Microsoft with its acquisition of OpenAI’s technology or Nvidia, which manufactures the majority of chips needed to run AI systems are good examples.

How Growth Investing Works?

Although it will be challenging to find strong fundamental companies, it would not be a bad starting point to analyze a company. Finding growth companies with strong fundamentals will allow you to filter out companies not worth investing in. A company’s fundamentals can also tell you a lot about its management.

The key metrics to look at when analyzing a growth company would be a company’s free cash flow, net profit margin, earnings growth, sales growth, and return on invested capital. These five metrics highlight a company’s ability to take invested capital, create their product, sell their product, and produce a profit from the sale of their product. Companies with a high ability to produce strong fundamentals often are led by state-of-the-art management.

After finding companies with strong fundamentals, it is still worth checking the management of that company. Check LinkedIn, Glassdoor, or Reddit to find company culture and the accolades of high management. Try to find the CEO's five to ten-year goal and use their past accolades to see how successful they have been at accomplishing prior goals.

Once you have an idea of a company’s fundamentals and leadership, a present and future sector analysis would be helpful to understand where not only the company is heading but also its competitors. Identifying a sector’s growth potential, where that company sits in its sector, and the risks and opportunities of the sector can confirm whether this company is worth investing in.

Side Note: It may be useful to check a company's credit score.

Famous Growth Investors:

Michael Burry - The man who predicted the implosion of the housing market in 2008; His portfolio contains companies not many know of, but ones he believes will grow the most in the next five years.

Steve Cohen - Owner of the New York Mets; Cohen owns more large stock companies with high upside. He also owns a variety of lesser-known growth companies

Warren Buffett - While you could consider Buffett a growth investor because of the growth of his portfolio over the past 40 years, Buffett is better looked at as a value investor. Buffett is more conservative when it comes to fundamentals and often buys companies when he deems them undervalued.

Conclusion:

You should know that growth investing is more risky and the movement of growth companies stock price will fluctuate more than a value company. While ETFs should be a majority of your portfolio, it would not be a terrible idea to incorporate individual stocks (growth or value) into your portfolio at your own risk tolerance.

As always, this is not financial advice. This information is solely my opinion.

That’s all for this week and I hope you enjoyed reading! I am always open to feedback whether through Twitter messages, the comment section below, or email at [email protected].

Feel free to share the newsletter if you found value and would like to help others with their investing and finances.

Over the next four weeks, follow along to learn about the other four investing strategies. The worst thing that can happen is that you recognize a new perspective on information you have already heard before.