Growth investing, when it works well, features stocks doubling and tripling and more. To get good at growth investing, though, you should study it. Here are a few quotations from some big names in the investing world that can help you be a better growth investor.
"One of the big problems with growth investing is that we can't estimate earnings very well. I really want to buy growth at value prices. I always look at trailing earnings when I judge stocks." -- David Dreman
Growth investing is sometimes presented as the counterpart to value investing, but it doesn't have to be. You can seek rapidly growing stocks that also happen to appear undervalued. This quotation from David Dreman, known for his success as a contrarian investor, reminds us that rapidly growing companies tend to present more uncertainty than more established, slower-growing ones. When you're trying to get a handle on a stock's intrinsic value, any estimate of future earnings is just that -- an estimate. Since rapid growth isn't as sustainable as slower growth, it often doesn't last as long. Looking backward can be helpful, as a track record that features some consistent growth and a dearth of scary items such as surging debt or very volatile profit margins can be encouraging.
"If you're looking for a home run -- a great investment for five years or 10 years or more -- then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge." -- Ralph Wanger
Of course, growth investing can also be effective when you spend a little less time modeling future performance and more time looking at the big picture. When Amazon.com was a small, young company, for example, it wasn't too useful to guess what its revenue or earnings would look like in five years. Instead, it was more important to understand its strategy of adding more categories of products to sell online and to believe that consumers would increasingly embrace online shopping. Wanger, known for a great run as manager of a small-cap growth fund, reminds us that great growth investing involves spotting promising trends. Some recent ones include 3-D printing, wearable computing, and big data. You don't have to focus on technology, either, if you're not well versed in it and not likely to become well versed in it -- the growing popularity of yoga helped lululemon athletica become a successful growth investing holding.
"No one can see ahead three years, let alone five or 10. Competition, new inventions -- all kinds of things -- can change the situation in 12 months." -- T. Rowe Price
This quotation from T. Rowe Price, founder of the respected T. Rowe Price money management firm, is a good reminder that growth investing requires vigilance. You do need to spot trends and believe in the growth potential of certain companies, but that's not enough. You also need to keep up with them, as things can change rapidly in dynamic, fast-growing industries. Many people had high hopes for e-commerce before the Internet bubble burst, and they were right to have them. But not every e-commerce company prospered. Watch developments unfold and be willing to admit when a company you believe in seems to have lost its edge. Stubbornness or overconfidence can be costly.
"Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market." -- James Slater
As you seek out long-term growth-investing winners, a good place to look is among small-cap stocks, as they have the most room to grow. They're also underfollowed, as remarked by James Slater, known for popularizing the price-to-earnings ratio. If you find and invest in a gem before most investors -- especially the big investors -- you can profit over time as they eventually pile in and drive the price up.
You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a ...000 thing. -- Warren Buffett
This last quotation, attributed to Warren Buffett, points to another critical aspect of successful growth investing: patience. You might have to wait a long time for a few great ideas to come your way -- and a few opportunities can be all you need in your lifetime. Once you invest in companies you believe in, you'll need patience to wait for them to realize their potential. Amazon.com investors, for example, have seen the company's stock price jump and drop many times over many years, and it's not done growing yet.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Amazon.com and Apple. The Motley Fool recommends Amazon.com, Apple, and lululemon athletica and owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.