25 April 2013

Why Do We Need to Buy "Growth" Stocks?

Today I reread on <Paths to Wealth through Common Stocks> written by Phillip Fisher, one of the Investment Guru in U.S. 1 question has crossed my mind, that is why do we want to invest in equity.

If your mindset is just to have an asset class that can beat inflation rate, equity is one of the best tools that I can think of. To investors especially with lower risk appetite, Equity seems riskier than Fixed Income, or alternative investment such as real estate. We have heard most of the time that trading in shares could let your become broke or become poorer than before. After all, it is about your mindset, on how you think  what Equity Investment is.

To me, I prefer to buy in those companies with sustainable growth. It is exactly like putting your money in private company, that you wish to see the company is growing and be assured that the manager uphold his duty to further expand the business and manage the cash flow in healthy manner. If you are a believer in long term investment, then you should invest in those companies that has the power to grow faster than peers in long run.

To be a business-like investor, you have to fully understand the business model the company is employing now, and how the company management is doing their job to keep the company competitive enough to survive and prosper in future. The shares investment is not about the Capital Gain that you could take home each day, but to the extend how much confidence you have with this company, and how much you are willing to pay for it to be part of the company's shareholders.

Imagine, if you invest in Apple ten-twenty years back, you could easily enjoy the multiple fold capital gain in just about 10 years time. So the more homework we do to investigate in the stocks that in our watchlist could help us to be more confidence to hold it long enough to allow the company to grow in revenue and earnings in few years time.

Selecting the good stocks to me, is more important than selecting the right timing to go in to the market. As long as your mindset is correct, invest in equity market is as simple as to be part of the company that is growing in sustainable way.

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