We've all heard the old investing adage, "Buy low, sell high" -- which is sound (if not obvious) advice. But as commonsensical as it seems, trying to follow 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 Apple (Nasdaq: AAPL) and Schlumberger. These go-getters sport five-year earnings-growth estimates of at least 15%, and trailing-12-month price-to-earnings (P/E) ratios that clock in above that of the S&P 500. Starbucks (Nasdaq: SBUX) and Yahoo! (Nasdaq: YHOO) also fit that bill, and all have soundly beaten the S&P 500 over the last 10 years.
That said ...
The flip side with highfliers, of course, is that they can sometimes take you for a wild ride on the road to investment riches. All of the above have certainly experienced performance gyrations, 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 these stocks appear in the lineup of one of our favorite mutual funds, a pick that's risen 53% since it was first recommended to members of the Fool's Champion Funds investing service in 2004 -- easily topping the S&P 500's 25% return. Because those names appear in a well-diversified portfolio that recently included buttoned-down big boys like Hewlett-Packard (NYSE: HPQ), Home Depot (NYSE: HD), and Wal-Mart (NYSE: WMT), investors here have been treated to a relatively smooth ride, 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, a pick that provides plenty of bang for your growth-investing buck, and the peaceful feeling that comes with owning a stake in a well-diversified portfolio.
If you'd like to sneak a peek at all the funds recommended since Champion Funds first opened for business, just click here and snag a free 30-day guest pass. There's no obligation to stick around if you find it's not your cup of tea, so go ahead and give the service a whirl.
This is adapted from a Shannon Zimmerman article originally published on Oct. 10, 2006. It has been updated.
Rex Moore has gone Wii crazy. He does not own shares of any company mentioned. Home Depot and Wal-Mart are Inside Value recommendations. Starbucks and Yahoo! are Stock Advisor selections. You can check out the Fool's strict disclosure policy by clicking right here.
