Growth strategies imply focusing on future rather than current profit. This implies that an investor following the strategy is looking for capital gains rather than income, but the converse is not necessarily true. It can be reasonable to follow a value strategy for capital gains.
Growth investing is one of the two most common strategies, the other being value investing. However, not all growth investors follow similar strategies: the aggressiveness of the risks they take, the type of growth (expansion of existing operations vs new technology) they favour and what indicators they will look at (sales growth or profit growth for example) will vary.
Growth investors, especially those investing in very high growth companies, need to be aware of a number of pitfalls, including:
- High growth cannot be sustained indefinitely, and it is difficult to predict when it will slow.
- Fast sales growth may lead to overtrading.
- Management, or management structures, may be unable to cope with the complexities of a larger business.