Warren Buffet's Secret to Choosing Stocks: Growth Investment Strategy

How Warren Buffet and other good investors choose stocks? Read to know their secret growth strategy.

By Ella Williams May 13 2021 6:34PM 605 Read
How to Become Rich in 5 years with Investing: Growth Strategy

Books are best when it comes to learning. It is a collection of an author's life experience & it is essential to understand the basics of anything that we want to execute. Nothing is better than books that can clear all our doubts. And the same concept applies when it comes to the stock market, which is a delicate market. If anyone enters it without having enough knowledge about the market, it can destroy that person.

Here we came with the top 3 growth investing books of all time which will help you to understand the basic concepts of it and help you to grow in it.

About Growth Investing

Growth investing is an investment strategy for increase your capital or wealth at a rapid rate by investing in high growth companies. These are generally small companies with high CAGR, good P/E, high profitability, and good financial statements. These companies grow at a higher rate than the market and thus, called Growth Stocks.

Top Features of Growth Companies:

  • Small/Young Companies: Less than 10 Years Old
  • Highly Profitable: Higher than Market Average
  • Large Target Audience: Solves a General Problem
  • Boosting Sector/industry: Example, Technology, Pharmaceutical, and Construction
  • Strong Sales Numbers: Increasing Every Year

Best Growth Investing Stock Example – Amazon Inc.

Amazon Inc. (AMZN) has long been considered a growth stock. In 2021, it remained one of the largest companies in the world and had been for some time. In Q1 2021, it was ranked third according to valuation in the US stocks list.

Amazon shares have historically traded at high prices to the income ratio (P/E). Between 2019 and early 2020, their P/E ratio remained over 70, moderate around 60 in 2021. Despite the large capitalization, Amazon's estimated EPS (Earnings Per Share) for the next five years is around 30%.

How to Find a Good Growth Stock?

There is no fixed formula for finding a good growth stock, and it completely depends on investors' perception, experience, objective, and judicial powers. However, there are four crucial factors to look at in a company if you are finding a growth stock:

  • Good History of Earnings Growth – 10-12% Per Annum Growth Rate is Recommended
  • High-Profit Margins – Sales to Profit Ratio should be getting better
  • Stock Performance: The share price must double in five years, i.e. 15% growth rate
  • Strong Return on Equity (ROE): Calculate by dividing income by equity

3 Top Books for Learning Growth Investing (With Reviews)

  • Benjamin Graham and The Power of Growth Stocks
  • Common Stocks and Uncommon Profits
  • Stocks for The Long Run

Growth Investing Book Reviews

  • Benjamin Graham and The Power of Growth Stocks Benjamin Graham, the father of value investing, mastered value investing and growth investing at that time when no one had trust in the stock market. He helped the world and introduced intrinsic value. It is one of the best books written on growth stock valuation, and the author has delivered his powerful thoughts even more powerfully to the world.
    Frederick K. Martin writes the book. He is Founder & Lead Portfolio Manager at Disciplined Growth Investors. The dean of Disciplined Growth Investors did understand the role of growth stocks later in his life and wrote the book. The writer thoroughly explained the subject with legitimate examples.
    If you are a bookworm, then you can complete this book in 2 to 3 days easily and can pick some interesting and most ideas that you can apply while investing in stocks.
  • Common Stocks and Uncommon Profits This is another one of the best books about the growth stock investment approach. Even Warren Buffett, the most successful investor in the world, praised it. The book is written by Philip Fisher, who is a long time investment practitioner and pioneer of growth investing.
    He explained how the growth stocks work? What are the benefits of buying them? What to buy? When to Buy? When to sell? The author describes the growth stock as a strategy that focuses on buying stocks of young companies expected to grow in the upcoming year at a rate above then their sector. Overall, it is an excellent book to read and understand the basics of growth investing.
  • Stocks for The Long Run Jeremy J. Siegel's Stocks for The Long Run is a very informative book for practical investment advice. It is a good read book for those who want to invest in long term future investments. The author makes a convincing case for long term growth stocks. He also explains that the best asset class to hold upon is none other than long term growth stocks.
    You will get a deep awareness of the historical returns on bonds and stocks starting from 1802. This book is also named "the buy and hold Bible". Financial columnist of The Washington Post, James K. Glassman, termed it as one of the ten best investment books of all the time. After its first edition, which was released in 1994, there are five editions to this book, and the last edition was released in 2014.

Best Growth Stocks in India

As said, there is no formula to find growth stocks, but there are some major factors that help. Out of that, we have chosen the top 3 stocks, namely:

  • Stock 1: Bharat Rasayan Top Reasons:
    • Agriculture is a Boosting Future Sector in India
    • High CAGR of 38.2% (Five Years)
    • Strong ROE: 32.9% (2020)
  • Stock 2: Deepak Nitrate Top Reasons:
    • High CAGR of 63.3% (Five Years)
    • Strong ROE: 46.6% & P/E Ratio of 26.5X(2020)
    • Supplies products to top 10 chemical companies of India
  • Stock 3: Bajaj Finance Top Reasons:
    • High CAGR of 42.4% (Five Years)
    • Strong ROE: 20.2% (2020)
    • Low NPAs: 0.65%
    • High Trust Level & Safety
Final Investment Advice

It was the compiled list of all the best books for growth investing. The best thing about books is, these are always in reach and handy. So, whenever anyone feels any difficulty or need access to them, these are there for everyone. According to Walt Disney - "There is more treasure in books than in the entire pirate's loot on Treasure Island." So, read books, gain knowledge and execute them in your life. It will make you happy and wealthy.

Ella Williams
Ella Williams View More Posts

I am currently the PR and Branding Director of a Chinese finance club and the Assistant Coordinator of Our Own College, Dubai, and Students’ Committee. I am currently a final year student, pursuing a degree in marketing.

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