Growth versus Value

One manner by which professional investors segregate stocks in an effort to understand and hopefully improve performance is to separate them into 3 categories - growth, value, and core. Not a random classification, companies classified into these categories have often exhibited similar performance and volatility characteristics.

Growth stocks are securities issued by companies which either have been growing rapidly or show signs that they will do so imminently. These stocks will often have little or no dividend as assets are needed to invest in expansion. Because of the anticipated growth, these stocks will often trade at prices much higher than average relative to earnings and/or book value. These stocks will also tend to be more volatile than average, reacting more than others to interest rate shifts, economic change, and relevant news.

Value stocks are securities issued by companies that are in some way undervalued. The company may be paying a higher than average dividend. There may be negative assumptions that have overly hurt the price. Their may be risk issues deterring investors while all other aspects of financial and operational health remain in good order. Whatever the case, these stocks often trade at prices lower than average relative to earnings and/or book value. Because of this apparent discount and occasionally higher than average yield, these stocks tend to be defensive in nature and therefore less volatile.