Ch7. Stock Investing — Growth, Value & Thematic Investing

Four Investment Styles

Style	Core Criterion	Legendary Practitioners
Value Investing	Undervalued vs. intrinsic value	Warren Buffett, Benjamin Graham
Growth Investing	High growth potential, PEG < 1	Peter Lynch, Philip Fisher
Dividend Investing	Stable, growing cash flows	John Neff
Index Investing	Replicate the entire market	John Bogle

Growth Investing

Characteristics of Growth Stocks

Revenue and earnings growing 20%+ annually
High P/E (25–100x+), reflecting future expectations
Typically no dividends (reinvesting profits for growth)
Higher volatility than market

PEG Ratio: Growth at a Reasonable Price

PEG = P/E Ratio / Annual EPS Growth Rate

PEG < 1: Potentially undervalued relative to growth (GARP territory)
PEG 1–2: Fairly valued
PEG > 2: Growth expectations may be fully priced in

Current High-Growth Themes (2024–2025)

Artificial Intelligence & Semiconductors

Direct plays: NVDA, AMD, TSMC, ASML
Infrastructure: Data center REITs, power utilities serving AI
Software: Microsoft (Azure AI), Alphabet (Gemini), Salesforce

Healthcare & GLP-1

Novo Nordisk, Eli Lilly (obesity/diabetes drugs)
AI drug discovery platforms
Medical devices (DexCom, Intuitive Surgical)

Clean Energy

Solar, wind, battery storage
High policy dependency — track regulatory landscape

Value Investing

Value Stock Screening Criteria

P/E: Below sector average or below 15x
P/B: Below 1.5 or at discount to historical average
Balance sheet: Low debt-to-equity, positive FCF
Catalyst: Reason to believe undervaluation will be recognized

Value trap warning: Some stocks are cheap for good reason — declining business, disruptive threats, management issues. A low P/E is not sufficient without a positive thesis.

The Thematic Trap

Investment themes generate excitement but are notoriously difficult to profit from.

The Thematic Cycle:

Legitimate new technology/trend emerges
Early investors profit as theme gains traction
Mainstream media coverage → Peak hype → Valuations soar
Reality fails to match hype timeline → Selloff

Lesson: By the time a theme is widely covered by financial media, much of the gain has already occurred. Focus on which specific companies will genuinely benefit, not just thematic exposure.

Chapter 8 Preview

The final chapter: Portfolio Strategy by Investor Type — model portfolios for beginners, intermediate, and advanced investors, plus a complete investment checklist.