We've all heard the old investing adage "buy low, sell high" -- which is sound (if obvious) advice. But as commonsensical as that particular truism seems, following it can sometimes be downright painful. Some stocks never look "low," after all, and passing them up because their multiples seem rich can take a toll on your portfolio.
For example ...
Consider the cases of eBay (NASDAQ:EBAY) and Adobe (NASDAQ:ADBE). These go-getters sport double-digit five-year earnings-growth estimates and trailing-12-month price-to-earnings ratios (P/Es) that clock in above that of the S&P 500. CVS Caremark (NYSE:CVS) and EchoStar (NASDAQ:DISH) fit that bill, too.
Highfliers, of course, can sometimes take you for a wild ride on the road to investment riches. All of the above have certainly experienced performance fluctuations, which prompts this question: If you're the kind of investor who wants the gain, but prefers to keep the potential pain to a minimum -- and aren't we all? -- what's the best way to proceed with apparently pricey growth stocks?
Two words: mutual funds. All the stocks mentioned appear in the lineup of one of my favorite mutual funds, a pick that's risen by more than 48% since I first recommended it to members of the Fool's Champion Funds investing service. Because those names appear in a well-diversified portfolio that recently included comparatively buttoned-down companies like Lowe's (NYSE:LOW) and Yum! Brands (NYSE:YUM), investors here have been treated to a relatively smooth ride, too.
Despite the fund's focus on growth stocks, it has been only slightly more volatile than the broad-market-tracking SPDRs (SPY) exchange-traded fund (ETF) for the five years that ended with June, all while pole-vaulting past more than 85% of its like-minded competitors and besting the S&P 500, too.
The Foolish bottom line
If you're looking to wade into the potentially choppy waters of growth-stock investing, good for you! With greater risk comes the potential for greater reward. That said, I think you'd be Foolishly wise to consider getting the job done with a well-chosen mutual fund. It'll provide plenty of bang for your growth-investing buck and the peaceful, easy feeling that comes with owning a stake in a well-diversified portfolio.
If you'd like to sneak a peek at all the funds I've recommended since Champion Funds first opened for business -- a group that has bested the market by a double-digit margin to date -- just click here and to take our service for a risk-free spin.
This article was originally published on Oct. 10, 2006. It has been updated.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service. At the time of publication, he didn't own any of the securities mentioned above. eBay is a Motley Fool Stock Advisor pick. You can check out the Fool's strict disclosure policy by clicking right here.
