Growth at a reasonable price (GARP) combines value and growth investing to identify investment opportunities with a narrow criteria, aiming for significant returns with reasonably low risk. The strategy involves identifying firms with slightly higher growth patterns than general reference levels and qualifying them based on current valuations. The approach can be used for short-term or long-term investments, but investors must carefully weigh options and project future movement to determine viability.
Also known as GARP, growth at a reasonable price is a strategy that seeks to combine elements of value investing and growth investing into a viable approach. If successful, this strategy allows you to identify investment opportunities that meet a fairly narrow criteria, acquire those stocks, and increase your chances of earning a significant return from your 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 chance of returns while keeping the level of risk reasonably low.
With growth at a reasonable price, the idea is to identify firms that show slightly more pronounced growth patterns than general reference levels. This particular aspect of growth investing then qualifies with the current valuation of the securities issued by those same companies, a process which makes a basis of the value investing process fall on the approach of the investor. Ideally, this decision to use a reasonably priced growth approach results in the identification of stocks with a robust growth-oriented nature that also possess relatively low price-to-earnings ratios that the investor finds favourable.
Assuming the stocks possess the characteristics necessary to qualify for this growth at a reasonable pricing strategy and perform in a manner consistent with investor projections, the chances of achieving a significant return over time are very good. At the same time, this strategy can also be used effectively with investments intended to be held for a shorter period of time, even for just one calendar year. The trick is determining how and at what rate growth will occur, when it will start to level off, and at what point the investor must sell stocks to maximize returns.
As with most types of investment strategies, growth at a reasonable price isn’t a foolproof approach. For the strategy to work, investors need to weigh options carefully. There is currently no defined process for assessing the viability of an investment opportunity, other than the broad concept of combining the foundations of growth and value investing into one approach. This means that investors still need to spend the time using all available data to project the option’s future movement and determine whether the proposed growth rate will lead to a desirable end. If not, the investor would do well to abandon safety and look for opportunities with other options found in the market.
Smart Asset.
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