What is the difference between an investor who funds a startup during its incubation and a startup investor when it is listed on the stock exchange? can! Method and investment style

Investors who “donate” capital when the company is still to be established or is still small may be classified as clans. investment for growth. At the same time An investor who buys a company’s shares when it is listed on the stock exchange and is still cheaper than it should be is called embrace. worth investment.

What is the difference between the two? Aren’t they both investors? Curious? Check out the following discussion:

What are growth stocks?

First, let’s understand what growth stocks are.

Stocks can be considered growth stocks if they are of the following types:

  1. in general, Shares are issued by companies that have recently been listed on the stock exchange. Or even set up so that the company’s focus is on expanding the business and not paying dividends to investors. Large companies can enter this category if they focus on expanding their business over the next few years.
  2. It has an average earnings per share of about 5%. For companies valued at about $4 billion, 7% for companies valued around $400 and 12% for companies that are undervalued. This value is derived from EPS results over the past 5-10 years.
  3. Has strong earning potential
  4. has a strong profit margin The profit margin is derived from total sales minus operating costs. Again, the result of the decline is divided by total sales. This matrix is ​​needed because it is not uncommon for a company in the growth stage to pursue sales regardless of cost and profit factors.
  5. The value of the share price increases by at least 15% in one year. or doubling in 5 years. Stock prices that are about to double in 10 years are excluded from this category.
  6. The ROE value has increased in the past year. ROE is obtained by dividing net profit and number of outstanding shares. A steady or indirect increase in ROE value indicates the ability of a company’s management and commitment to investor-provided capital.

One example of growth stocks that have emerged in recent years are stocks of tech companies such as Apple, Amazon or Netflix. The company’s share price will be adjusted. But it is undeniable that AAPL, AMZN and NFLX share prices have risen sharply since the IPO.

What is stock value?

The stock value is the stock of a good company, but the price is low (lower than the price it should be / Underrated) as opposed to growing stocks. Value stocks are usually securities issued by companies that are already in relatively good standing. The share price also declined.

This drop in share price may be due to the economic crisis. The scandal that happened to the director of the company personally. and other factors That only affects the share price without causing serious consequences to the company’s finances.

For example, the value of book value Company A’s shares are Rp. 3,500 each. However, investors and market traders trade at Rp. 3,000 each. This means that the share price may rise again to reach Rp. 3,500. this You will have the opportunity to earn Rp 500 per share.

The concepts of growth and stock value are often just theories and guidelines. Some stocks can be classified in both categories at the same time. You also need in-depth research into your company’s business model and financial condition to determine if the stock you’re looking for is growth or value.

Difference Between Investing for Growth and Investing in Value

draft growth and worth investment really similar So it’s no surprise that big investors like Charlie Munger, Warren Buffett and Peter Lynch think the two can be mixed.

However, from the above definitions of stock value and growth, The two concepts are quite different from each other.

1. Company focus

as mentioned above Growth stocks are generally securities issued by companies that are newly formed or recently listed on the stock exchange. The share capital is the shares of an already established company. but is being revised below its potential.

From this paradigm, it can be concluded that If you bought AAPL stock only when Apple Inc. was listed on the stock exchange in 1980, you might be called a “stock market.” growth investorsHowever, if you buy shares in a company founded by Steve Jobs while the price is falling. known as valuable investor

2. Risk and reward ratio

If you bought 1,000 shares of AAPL in 1982 and sold them on December 23, 2021, you would have a profit of $173,010. This is because in 1982 Apple’s share price per share was 0.060, while last December it was worth $173,010. up to 173 USD

It’s a big advantage, right? However, in 1982 you might be wondering if your investment in this new company will be successful. Even though it’s worth 60 USD when it’s already large. The risk of investment failure as non-advanced companies face investors with other growth investment forms.

On the other hand, value-based investors are not exposed to this risk. Since they usually invest in established companies that have adjusted their share prices, they have edge of safety The big one. The risk they face is that the company’s share price will not go up again as expected.

For example, you decide that the financial statement Apple’s stock price should be $173 per share, and it’s currently sold at $137, so you buy, but 1 year after the purchase process is complete, Apple’s stock price has only increased to $146. You will not earn a maximum of 35 USD per share, instead you will receive only 13 USD per share.

3. Time Orientation

The third difference is the orientation of the time or the time horizon. in general investors with investment style investment for growth There is a long orientation, either way for the next 5 or 10 years, and then they release ownership if the return on investment is profitable.

On the other hand, many argue that time orientation worth investment shorter investment for growth. Since it is possible they will sell their asset if the asset’s price rises to the desired level.

However, there are also valuable investor who survived investments in long-term companies like Warren Buffett

Is it a better investment for growth or a worthwhile investment?

you can choose investment for growth if:

  1. You are not interested in earning money from your current investment portfolio.The reason is that companies with growth stocks tend to allocate profits to expand their business. Therefore, it rarely gives investors dividends.
  2. you are at high risk Because it was published by a company that is still developing. The price movements of growth stocks tend to be highly volatile, i.e. if it is a bull market, it can go up. But if it is a downtrend, it may fall rapidly.
  3. You are confident in the results of the analysis you do. in general, growth investors Is an investment company or a person who has good stock analysis skills Because of course it’s not easy to choose a startup company as your investment partner.
  4. Another reason why in general growth investors It is an institution or a person who has enough wealth. To benefit from this investment will have to wait a while. This is because it is not uncommon for an expansion-focused company to fail to turn a profit within 5-10 years of inception.

It should also be understood that not everyone can be a growth investor. In addition to the limited capital Not everyone has access. financial statements or the annual report of a company that is not listed on the stock exchange Investors who have access to these private company reports are usually institutional investors, such as investment or venture capital firms or individual investors. But there is already a relationship with the founder of the company or someone named in the field.

worth investment It will suit you if:

  1. You want to get a return on your investment in the near future. Established companies tend to pay more dividends than developing companies.
  2. Are you at low or medium risk? Share prices of large companies, such as blue chip stocks, tend to be less volatile compared to newly listed companies.
  3. You are confident in the results of the analysis you do. if growth investors You must be confident in the results of the analysis to select the best new stocks. valuable investor You have to be confident when choosing company stocks at low but not cheap prices. Because it is not uncommon for low-priced stocks to be of low quality and have no potential to go up.
  4. You have limited capital and access. As written above, investment for growth It’s not right for you if you didn’t have your company’s financial statements before the company was listed on the stock exchange. worth investment would be more appropriate

No matter which investment style you choose You need to analyze rigorously to use that pattern to make a profit. In this case, you need to do the necessary financial analysis, for example: ROE, P/E ratio, PEG ratioAnd it takes a deep understanding of how a company’s business operations can be run and profitable.



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