Growth Investing Made Simple

Are you a newly retired baby boomer looking to make the most out of your current savings? Perhaps you’re younger and looking for a way to increase your investment earnings at a faster rate.

Growth investing is fast becoming a popular investment choice for those seeking to achieve higher returns on their investments in less time.

Investing for growth is set apart from other investing strategies due to one major difference. Most investment strategies involve monitoring the historic trends of a stock while juxtaposing this information with a stock’s current performance in order to help determine the possibility of future growth.

If you’re investing specifically for growth, however, you’ll focus more on current factors and will often have less historical information to base your investment decisions on.

If you think there’s increased risk to this investment strategy, you’re correct. However, there are also benefits that accompany the risks.

By being the first to invest in a high-potential stock, you’ll reap greater rewards than those who follow afterwards. This is the main principle of growth investing at work and makes this a highly lucrative way to invest your money.

Let’s look at some of the other key components involved in investing for growth.

Probability

Make probability your friend. If you have little historical information to base your investment decision on, you’ll want to use sound mathematics and probability to weigh the profitability of your stock picks.

* Probability is the chance that your stock will perform favorably and give you a return on your investment

* Magnitude is the amount of earnings you expect to reap if your stock performs favorably.

* Expected Return is the final calculation that takes into account how much you stand to gain when your stock performs favorably and how much you stand to lose if it performs poorly.

If you’re still not sure how all of these terms relate to making a sound investment decision, the following question sums up the entire principle quite nicely:

How much money will I make if I’m right and how much will I lose if I’m wrong?

If you stand to gain a lot when you’re right and lose very little when wrong, this is an ideal investment scenario if you’re investing for growth.

Common Sense

It may be a challenge to predict which forms of technology will become big in the future. Who could have predicted that cell phones would be as popular as they are now when they were still in the early stages of development? How about bottled water? If you predicted these immensely popular trends, then you might be reading this article from your yacht in Monaco.

While it may be difficult to predict the future, you can use what you already know to help you make sound investment decisions.

What do you already know? Probably more than you think.

Take typewriters, for example. Investing in a technology that is obviously outdated and becoming closer to extinction is not a profitable move to make. There are many types of investments for which you can use your common sense in order to determine if the overall forecast seems favorable or not.

Economic Trends

Follow a top-down macroeconomic model. Rather than worrying about what other investors are saying is a “hot pick,” look at the larger economic picture.

* Look at what’s happening in the economy. Is there a large-scale trend happening in any major industry?

* Consider what sectors will benefit from these trends and other changes that are taking place in the economy.

* Look at companies that are in those sectors that are best able to deliver to the market what it needs.

Investing for growth uses large-scale trends to help make investment decisions. Start thinking about what you hear or read in the news each day. Ask yourself what areas of the economy are changing and what new types of needs are emerging? These questions will help point you towards potential stocks that are conducive to growth investing.