Growth-Investing Basics for Your Investment Portfolio

Growth-investors in the UK are investors who focus only on companies that are growing quickly and can deliver massive returns. They love talking about fundamental measures and numbers, focusing on balance sheets, profit and loss statements, cash flows, and the assets and liabilities of their chosen company; they deliberately ignore talk about options or volatility.

Growth-investing guru and professional hedge-fund manager Richard Driehaus has no time for talk about magic valuation methods or the fundamental value of stock. For him, each company’s share price is unique and that means investors have to look at the company and what it does, instead of comparing it to anything else.

For Driehaus the key is to buy high (when a share price is trending upwards) and then sell even higher. This philosophy means that Driehaus tries to buy into a share where the price has already started trending upwards, making new recent highs and showing strong relative strength. He thinks that these features mean that the stock is in demand from other investors like himself.

This strategy is obviously risky: you can end up buying near the top of a share’s price cycle. But Driehaus says:

I would much rather be invested in a stock that is increasing in price and take the risk that it may begin to decline, than invest in a stock that is already in a decline and try to guess when it will turn around.

Driehaus’s investment company has taken this aggressive growth style and developed a sophisticated investment strategy built around the following simple principles:

  • Aggressive-growth companies, by definition, are the fastest-growing companies in the economy, in terms of revenues and earnings.

  • Earnings growth is the principal factor in determining the prices of common stock over time.

  • The fastest-growing companies also tend to be the most adaptable and dynamic firms within the economy.

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