By James Yeo //
February 3, 2021

If you ask someone what the word ‘investing’ means to them, they will probably tell you that it’s similar to gambling but with businesses instead of cards and dice. This is a preconceived notion a lot of people have and it’s not exactly unfounded.

Many investors do treat it that way, and they will just buy random shares or invest in companies they know are popular but don’t really know the financial state of and then hope that the fluctuation works out in their favour.

But they’re not good investors, and their strategy tends not to lead to any significant returns. Investing is a science. Effective investing is based on knowledge, planning and patience and there’s more than one way to do it. 

One of these methods is something known as growth investing. A company that offers growth stocks is one that uses all of their earnings, including those from investors, to expand products and services, as opposed to paying out dividends to their shareholders.

What this means is that if you invest in one such company, you won’t be getting a share of their profits on a monthly or yearly basis, but the value of your shares are more likely to increase and long-term it can lead to some serious returns. 

It’s more suited to those who are in it for the long haul and are willing to be patient with seeing results. So if that sounds like you and you think that growth investing is your path to successful investing, here’s a guide on how to go about it:

Step 1: Secure Finances

So as we briefly discussed above, if you opt for growth investing, you won’t be getting the same regular income that one who goes for stocks which yield dividends will be getting. It’s an entirely long-term thing.

You can’t really use growth investing as an extra source of income because it won’t be consistent and it won’t be reliable. For those who go the other route, they can be confident that they’ll get whatever money they spent back. 

Before you go spending a ton of money on growth stocks, you have to make sure that you won’t be sending yourself down a path to financial ruin in doing so. Ensure that you do have a reliable source of income.

And make sure that it’s one which is going to last. You won’t see the returns from growth investing for a long time so either have a lot of money saved or have a a lot of money coming in before committing to it.

Step 2: Research

Research is an essential part of any different investing method and it’s something that you need to do well in advance of actually purchasing. One of the primary reasons for this is because you might actually realize that it’s not for you.

growth stocks

When I say research, of course I mean research the history of growth investing, research current trends in growth investing, just find every little piece of information that you can about it, but don’t limit your search.

Research other forms of investing too. Research value investing, stocks, bonds mutual funds, exchange-traded funds, learn about all of it. A more well-rounded view of investing as a whole will be very helpful when making decisions and searching for the right stocks. 

Step 3: Learn the Basics of Investing

You’ve got some money ready and you’ve decided on growth investing, now you actually have to know how to invest. Where do you put your money, where do you go to buy the stocks that you select.

There are a couple of options. One of the most common routes is to go through an online broker. You have traditional brokers who will offer all of the brokerage services and allow you to make transactions through them.

And then you have discount brokers, who are more common now and will give you all the tools you need to make the transactions yourself and set up your own system, which gives you a bit more freedom but also gives you more work to do.

There are some great ones out there and you can find them pretty easily online. You can also invest through the company you work for if that’s an option your workplace offers. It’s an easy route because you will just decide on your stocks and the amount you want to pay will come out of your paycheck. 

Step 4: Learn to Recognize a Good Growth Stock

Learning how to recognize a good growth stock will take a bit of time, but once you know what you have to look for it will start to become a second nature for you. There are a few things to look out for. 

First of all, the best growth stocks tend to be newer companies in industries that are on the rise. It can be tricky because it’s hard to tell for sure how well a company will do in the future, but you can research their approach compared to those who have been successful in the past.

Historical precedent is a good indicator for future results so you can analyze that aspect of a new company’s method. You can also do some research on a company’s senior management, the executives on their board.

This information is usually readily available through the company’s website and through LinkedIn. Find out about their past experience and their track record with other companies. Inexperienced executives are usually a bad sign for potential growth. 

Step 5: Find Your Stocks

With the knowledge of what makes a good growth stock, you can now start to decide on which socks you think will be most beneficial for you to invest in. Don’t go crazy pumping investments into a bunch of different businesses, be selective.

You might happen upon one specific company which looks promising enough to be your only investment, or you might find a couple. In your early days, don’t go beyond five or six, aim for quantity over quality.

 

The approach here, like with a few of the other steps, is research. Find out what companies are offering growth stocks and analyze each of them based on the above criteria. Things like their business strategy, performance and executives.

The internet has made this a lot easier because there are now many websites which focus on analyzing stocks and advising on how to pick the right ones for you. Take this article about Glenview Capital Management for example.

A thorough and informative investigation about a hedge fund which covers a solid growth investment strategy. Finding information like this will be invaluable in helping you choose the right stocks.

Step 6: Prepare For the Future

Once you’ve invested, a lot of what follows is going to be patience. You need to wait for the stocks to grow, but in the meantime you should continue to do your research and keep on top of promising companies.

The reason for this is that even though you can be smart about your choices and set yourself up with some promising investments, there is no guarantee of anything, and it’s worth having some backup options in place for the future. 

Don’t lose touch with the trends and with new business popping up which might be worth investing in.

Effective investing is like any other money-making strategy in that to be truly successful with it, you need to put in a lot of work. But putting in that work will hopefully be worth once the stocks start growing. 

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