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Growth value spectrum

Fundamental investors often like to subdivide their equity investments into two main categories. These two categories are growth stocks and value stocks. A very low p/e ratio and p/b ratio are often associated with value stocks, while a high p/e ratio and p/b ratio are associated with growth stocks. Value stocks are believed to currently be trading below what they are really worth and will therefore provide superior returns. On the other hand, growth stocks are considered to have the potential to outperform the overall market over time because of their future growth potential. In reality, this categorization is more of a valuation spectrum which every company falls on. Every company, regardless of its industry or size, falls somewhere on the growth vs. value spectrum.

Growth stocks are not necessarily better than value stocks or vice versa. Some growth stocks can grow tremendously and see the value of the stock rising along with it. However, in bad (economic) times, these stocks can sometimes get hit very hard. On the other hand, value stocks tend to show less explosive growth but perform relatively better under difficult circumstances. Whether you want to be buying growth stocks or value stocks, this can be dependent on the overall economic circumstances but should also for a very large part be dependent on personal fit.

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