Growth Stocks
Growth Stocks
Growth stocks
are stocks that are being valued on their potential, as in the Widget
company/apple freeze example in Lesson 4, "What Is a Stock?" Investors usually bet that
the companies will become successful as a result of a great product or service or capable
management rather than something as dramatic and unpredictable as a crop frost. Growth
stocks typically put all the profits they make back into growing the business, so investors buy
this stock because they believe the value of the stock will go up as opposed to buying the
stock for the purpose of receiving regular or substantial dividend payments. Companies with
this type of stock include EMC (computer technology), AOL (Internet service provider), and
Wal-Mart (retail sales). Investors who purchase this type of stock usually plan to make their
profits by selling the stock for more than they bought it for. It is important then to push growth
stock of those companies you believe will ultimately prove successful.
TIP
Because growth stocks also best operate on the strategy of buy and hold, these too
are an excellent stock for novice investors to consider. Be aware, however, that as
growth stocks have (and plan) to grow considerably faster than blue chip stocks, so
too do the opportunities for loss.
