GROWTH INVESTING
Overview
Investing in companies expected to grow significantly faster than the market, even if they trade at high valuations. Growth investors pay premium prices today expecting large future earnings. High risk, high potential reward.
Setup
- 1.Identify companies with 20%+ annual revenue growth and expanding TAM (Total Addressable Market).
- 2.Look for competitive moats: network effects, switching costs, proprietary technology.
- 3.Evaluate management quality and capital allocation track record.
- 4.Accept high P/E ratios if growth justifies them (use PEG ratio).
- 5.Size positions with awareness that growth stocks can fall 50%+ in corrections.
Max profit
Unlimited — successful growth stocks can return 10-100x over a decade.
Max loss
Full investment — growth stocks are highly volatile and can lose 80%+ in bear markets or if the growth thesis breaks.
Breakeven
Purchase price; may require holding through significant paper losses.
When to use
In low or falling interest rate environments and early economic expansion. Best for investors with 5+ year horizons who can tolerate volatility.
When to avoid
In rising interest rate environments. When a company's growth is already fully priced (PEG > 3). When you need capital preservation.