Value Investors vs. Growth Investors

Investment philosophies can be either concentrating on value investing or on growth investing. You should clarify in which category you fall in order to select the most appropriate mutual funds that meet your investment approach.

Value Investments

When you are a value investor, you select assets with the so called "intrinsic value". This true value can be estimated as all the cash that a particular investment is about to generate until the investor holds it. Considerations about current levels of inflation should be taken. Moreover, risk-free Treasury return and equity risk premiums should be taken in to account as well. What is more, value investors generally invest in businesses that are well below the estimations of the intrinsic value. As a result most of them end up with very few investments at the end of the year. Under the correct evaluation of the cash flows, a company with 30 times earnings can be cheaper than a company with 8 times earnings. Thus, the value investors insure themselves against badly performing companies that have low price-to-earnings ratios.

If you recognize your investment philosophy in the previous illustration, then Third Avenue Value Funds, Oakmark Funds or Tweedy may be the right mutual funds to put your money in. There are many other mutual funds that offer value investments, so it is up to you to find them.

Growth Investments

If you are a growth investor, then you are inclined to buying the currently best performing and fastest growing companies. Growth investors disregard the price at which they can procure the company. On the other hand, many investors prefer steady dividends that are mainly observed with blue chip companies.

If you are an investment beginner it may be hard to determine your investment philosophy. But don't worry, by accumulating experience you will soon find your investment style. Then you should try to stick to it and choose mutual fund families that best correspond to it.

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