Many people, who run big firms on Wall Street, have been taught the buy & hold method in business school and they become strictly “value” investors and they sometimes teach the advisors in the firm to do the same. Value investors only look for stocks on the cheap (value stocks). They find a stock that is considered “under-valued” or, buy it and hold it for a long period of time as it, theoretically, becomes more valuable. I explained in this article why it’s ok to do this in the front end of a new bull, but not so great near the end of an old bull. The problem is many advisors do not know the difference, so they just do it all the time. However, there is another reason some companies teach their financial advisors to teach buy and hold—because they know if they stop holding stocks, you might ask for your money back. Do you think they want you to do this?
Often, I ask my students if they can think of a way a person could make multiple millions of dollars in the stock market with zero risk to them. Universally they all say, “No, there is no way to do that.” I then insist that they are wrong, there is most certainly a way— you simply trade with other people’s money! Everyone in the room gets angry at this point as they realize this is what’s been done to them.
These are some of the reasons financial advisors might leave your money in the market all the way to the bottom of a major correction, and they could likely leave it in all the way to the bottom of the next bear crash too. If so, one could lose as much as 35% or more of their total life’s savings. How do I know? Because this happened to many people in 2000, and again in 2008, before they came to us and learned the TRADEway skill sets for trading and investing.
So what’s the difference between value stocks & growth stocks?
Value stocks are considered “cheap.” In other words, Wall Street firms think that the stock should be worth more. That’s why they buy & hold, hoping someday the value will increase. These are usually companies that have been around for a long time and may even be in multiple countries, so the investor tends to think the company will never fail. Sometimes a value stock will offer a small amount of money to the stock owner when the company experiences a profit—this is called a dividend. Dividends are sometimes used to lure investors into buying the stock even if the stock value doesn’t increase very much.
But what are growth stocks? Growth stocks are younger companies; most growth stocks do not offer dividends, because they pump all of their earnings back into growing the company. This can help the company increase the value of their stock. Right now, they tend to be tech companies but it’s what Wal-Mart or Coca Cola used to be—before they became global brands. Growth stocks are usually the companies that are just beginning to experience this kind of growth. Imagine what your life would look like if you had owned a significant amount of Coca-Cola stock before it became a global brand!
At TRADEway, we teach that growth stocks are the best companies to do shorter term trades with. But in our opinion, they can be great for buy and hold at the front end of a new bull market as well. This is because growth companies have a REASON to move up; they are financially strong and their earnings tend to grow quickly. Knowing to trade in growth stocks rather than value stocks can enhance your potential to create wealth and earnings.
If you are wondering how to tell which ones are value and which ones are growth, it’s easy! For value stocks, look for the stocks that have a relatively low price compared to the earnings the company makes. To find a growth stock, look for stocks whose earnings are going up year-after-year. If you’d like for us to show you a step-by-step way to do this and where to find all the numbers, attend the TRADEway, “Step 1: Start Your Journey” event! We offer a money-back guarantee on the price of admission.