Which type of stocks should you invest in? Understand the differences between Growth Stocks and Value Stocks

Portfolio Structure and Growth Stock Selection

Building a balanced investment portfolio begins with understanding how each type of stock plays a different role. Generally, the stock market divides stocks into two main groups: (Growth Stocks), which focus on increasing value, and (Value Stocks), which emphasize dividend income.

Growth Stocks (Growth Stock) – Companies with Rapid Expansion

What are growth stocks? These are stocks of companies that have revenue growth exceeding the market average, with competitive advantages, in the growth phase of their business cycle, supported by innovation and clear competitive strategies.

These companies often do not pay dividends or pay very low dividends because they reinvest profits into expanding their business.

Characteristics of growth stocks:

1. Low or no dividend yield (Low Dividend Yield)
Less than the average of the market or the same industry sector because most capital is reserved for expansion and R&D.

2. High P/E ratio (P/E Ratio)
Higher than the market or industry average, as investors are willing to pay more for expected future earnings growth.

3. High P/BV ratio (P/BV Ratio)
Making the book value per share higher than the market average.

Value Stocks (Value Stock) – Companies with Stable and Reasonable Prices

What are value stocks? These are stocks of companies with stable operations, strong financial fundamentals, normal revenue growth, steady cash flow, and high dividend payout ratios. Experts often call these “good, cheap stocks.”

Characteristics of value stocks:

1. High dividend yield (High Dividend Yield)
Higher than the market or industry average, providing consistent income to shareholders.

2. Low P/E ratio (P/E Ratio)
Lower than the market average, often due to underperformance or market readiness.

3. Low P/BV ratio (P/BV Ratio)
Below the market or industry average.

Comparing Growth Stocks and Value Stocks

Choosing Stocks That Match Your Investment Style

Short-term investors (less than 1 year) aiming for profit from price increases and able to tolerate market volatility usually focus on growth stocks as their main choice. This type is suitable for traders who prefer active, frequent trading.

Conversely, long-term investors (3 years or more) who prioritize dividend income and are comfortable with lower volatility tend to choose value stocks. This group is suitable for those seeking stability and wealth accumulation.

How to Decide?

The key question is: what is your investment purpose? What are your financial goals? How long can you invest? And most importantly, how much risk are you willing to take?

Answers to these questions will help you build a balanced portfolio. Whether you choose growth stocks or value stocks, the most important thing is to invest with prior research, a clear plan, and a long-term success mindset.