Also known as GARP, growth at a reasonable price is a strategy that seeks to combine elements of value investing and growth investing into one viable approach. When successful, this strategy makes it possible to identify investment opportunities that fit a somewhat narrow criterion, acquire those securities, and increase the chances for earning a significant return from the investment activity. The idea is to dispense with the more extreme aspects of both growth and value investing and use the basic principles to generate the best chances for returns while keeping the level of risk reasonably low.
With growth at a reasonable price, the idea is to identify businesses which are exhibiting growth patterns that are somewhat more pronounced than the general marker levels. This particular aspect of growth investing is then qualified with the current valuation of the securities issued by those same companies, a process that brings to bear a basic of the value investing process on the investor’s approach. Ideally, this decision to use a growth at a reasonable price approach yields the identification of stocks with a solid growth-oriented nature that also possess relatively low price to earning ratios that the investor finds favorable.
Assuming that the securities possess the traits necessary to qualify for this growth at a reasonable price strategy and do perform in a manner consistent with the projections of the investor, the chances of earning a significant return over time are very good. At the same time, this strategy can also be used effectively with investments that are intended to be held for a shorter period of time, even for a single calendar year. The trick is to determine how and at what pace the growth will take place, when that growth will begin to level off, and at what point the investor needs to sell the securities in order to maximize the return.
As with most types of investment strategies, growth at a reasonable price is not a foolproof approach. In order for the strategy to work, investors must evaluate options closely. There is not currently any set process for assessing the viability of any investment opportunity, other than the broad concept of combining basics of both growth and value investing into a single approach. This means that investors must still take the time to use all available data to project the future movement of the option and determine if the proposed growth rate will lead to a desirable end. If not, then the investor would do well to abandon the security and seek opportunities with other options found in the marketplace.
