As you might have guessed by our name, Simple Growth Investing, we’re growth investors. In a nutshell, that means we focus on stocks with hot new products, or an industry that’s in favor now. There’s something new driving sales, which in turns drives profit growth. And when professional investors – like mutual funds, banks, insurance companies, hedge funds and pension funds – see those hefty earnings increases, they snap up shares. And what does that do? It sends the price higher.
An example of an outstanding growth stock from the past few years is Apple. That’s a no-brainer: Think of the iPod, the iPhone, increased purchases of MacBooks and iMacs. As the company continued innovating and introducing great products, people kept buying. Investors caught on, and the share price kept moving higher. Another big growth stock has been Baidu, a Chinese Internet search engine and portal. Another one that’s easy to understand. As more and more Chinese citizens move into the middle class, they’re using the Internet more, buying stuff online, playing games – everything people all over the world are using the Internet for. And professional investors see plenty of potential remaining for big growth in China – so they’ve been grabbing Baidu shares.
Stocks like Apple and Baidu (and many others) have rewarded investors with outstanding profits. Between January and October, 2009, Baidu climbed 189%. Apple rose 120% in that time. You can find other names that have risen even more. Some of those have been growth stocks with a solid track record of sales and earnings growth. That’s the kind of stocks we focus on here at Simple Growth Investing. You might also find speculative stocks – those with no profitability and usually a very low share price – that have also scored big run-ups. It happens, no question. But in our experience, and the experience of many other successful traders, those stocks can be riskier and if you’re not super careful, can lead to sudden losses. So when we say you should decide on an investing style and stick with it, we’d recommend growth investing. We have plenty of posts and materials here on Simple Growth Investing to help you with that. But if you do choose growth investing, don’t mix it with some speculative stocks, some value investing, some long-term investing and maybe some day trading for a quick pop here and there. By mixing all these styles, you’ll just dilute your focus and dilute your results. So pick a style and stick with it. You’ll develop an expertise, and you’ll begin to recognize the better names, and understand when to buy and sell them.