Best Investment Strategy for 2025?

May 3, 2025

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Anyone who is serious about investing in stocks, would have heard of value investing and growth investing. These are popular investing strategies.

Investors, young and old, new and experienced, have adopted them all over the world. Many swear by these strategies and apply its principles in every investment. Others use them only to an extent.

But what are these investing strategies all about?

Warren Buffett, the most successful investor in the world has said, ‘All investing is value investing’.

Value investing is all about finding out a company’s intrinsic value and then buying it at a discount to that price. This was pioneered by the father of value investing himself, Benjamin Graham.

When the stock rises above the intrinsic value, they sell.

Growth investing is all about one thing only, i.e. increasing the value of your investment portfolio, preferably at a fast rate.

That’s it. It’s the only thing all growth investors want. As long as their investments are gaining in value, growth investors are happy.

If their investments fall in value, most growth investors, with some exceptions, will consider selling. They may even use stop losses to ensure they don’t suffer a big loss.

To a growth investor, if a stock isn’t going up, it’s not worth investing in. It’s as simple as that.

This is contrary to the thinking of value investors who want stocks to fall so that they can buy them.

So, what explains this difference?

Difference Between Growth and Value Investing

The fundamental difference between growth investing and value investing is in the decision to buy and sell a stock.

Value investors buy low and sell high.

Growth investors buy high and sell higher.

Value investors desire a margin of safety in all their investments. This is a central concept in value investing. They want to buy at a discount to the intrinsic value of a stock.

The desire for a margin of safety is the reason why they wait for a stock to fall before buying it. A correction brings the stock’s price down to a cheap valuation. Thus, they buy low.

They then wait for the market to take the value stocks back up to a fair or expensive valuation. Thus, they sell high.

This is a proven, time-tested, market beating investing strategy. It’s used all over the world by many successful investors.

But value investing has its drawbacks.

• It demands emotional stability during volatile market conditions.
• It insists on a margin of safety before investing. In its absence, investors should not buy stocks.
• It requires buying stocks only at cheap valuations, often at a low price to earnings ratio and at a price to book value below one.

If these conditions are absent, especially during a bull market, then value investors will not find many investments. They may have to sit on cash.

On the other hand, growth investors care only for…growth. They’re always on the lookout for stocks with significant potential to go up in price.

Concepts like margin of safety are not of much importance to them. They’re mostly interested in knowing the reasons why a stock will appreciate.

The buy and sell decision usually comes down to earnings growth.

Growth investors believe that if a company can grow its earnings, i.e. net profit and earnings per share (EPS) at a high rate, then it merits investment.

They usually consider the following points before investing.

• The rate of EPS growth (quarterly and annually).
• The rate of sales growth.
• The company’s growth relative to its industry and the rest of the market.
• The company’s historical and more importantly, future growth outlook.
• The size of the company. Smaller companies tend to grow faster than larger ones.
• The chances of an increase in the profit margin. Can the profits grow faster than sales?
• Return on capital. If it’s below the cost of capital, then growth actually destroys value instead of creating it.

Clearly the two investing strategies are like night and day. This is why most investors tend to prefer one over the other. They find it difficult to implement both at the same time.

Which Strategy is Better?

Well, there is no straightforward answer to this question. Investors tend to prefer one over the other based on their own investing temperament.

For example, do you like the idea of buying stocks after a correction only to sell them when they bounce back? If so, then you may be suited to value investing.

Or do you like to study companies to find out how much they can grow? In that case, you may like the idea of growth investing.

Of course, it’s possible to do both but that would be too much for most investors.

How to Choose Between the Two Strategies?

Take your time. Study companies and sectors. Read annual and quarterly reports. Over time, you will develop a natural liking for one of the two. Stick to your preference.

Here are a few pointers. We believe these will be helpful to new investors.

• Start with high quality stocks. Read annual reports. Look for fundamentally strong stocks.
• Consider the long term trend. Check the last 7-10 years financials. This will weed out any companies with short term improvements.
• Avoid companies with a lot of debt. Insist on a debt to equity ratio below 1. The lower the better.
• Don’t invest in any loss making company or turnaround companies in India.
• Try to understand the industry dynamics. If the industry is too complex for you, don’t invest in those stocks.
• Don’t overpay. Put an upper limit on the PE ratio that you are comfortable with. Ideally, the PE should not more than 30 or 40 no matter which strategy you choose.

Conclusion

Both growth and value investing have pros and cons. Also, it’s very difficult to practice both at the same time successfully.

It’s best to practice both before deciding on one. Your natural investing temperament will guide you to one over the other.

Whatever your choice, make sure to acquire sufficient knowledge about the strategy, apply it diligently, and don’t be deterred by the occasional losses. Those are inevitable.

As long as you buy fundamentally strong stocks, don’t overpay, and hold for the long term, you will do well as a value investor or a growth investor.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…