Growth Investing

Mahipal Singh Randhawa | June 7, 2021

For this project I have chosen to go ahead with the growth + dividend yield investing topic. Growth investing basically refers to the investing in industries and stocks which are expected to grow at a higher than average rate. On the other hand, dividend investing refers to the buying of stocks of those companies which payout regular dividends (as dividends come out of the profits of the companies, it is considered as a sign of good financial health). So, the stocks which would fall under either one of these categories and the stocks of the companies which are paying dividend as well as experiencing growth year after year, are able to cover their expenses and have more cash flow year after year would be considered ideal for this strategy.

 

The rationale behind choosing this particular strategy is that with this strategy we get the best of both worlds in terms of getting a regular source of income as a result of the dividends as well as getting the benefit of whatever the growth the stocks in the portfolio exhibit in the long run. So the strategy will end up choosing only those stocks whose underlying value of growth and dividend yield are good and it will result in a decent and well balanced portfolio.

 

Moving on, for this strategy which I ran in the simulator the parameters which I had chosen and which gave the best output were the Mid Caps stocks in the Universe step owing to their potential growth prospective and controlled risks. In the sectors or industries step I chose three entire sectors namely Automobile, Chemicals & FMCG. Some of the highest dividend paying stocks belong to these sectors. In the next step, the frequency I chose was yearly. In the theme step, the indicators I chose remain same as the topic chosen i.e. Growth and Dividend_Yield. Finally, in the Advanced step I chose Industry Cross Sectional Normalization as it helps improve data integrity.

 

Given below is the screenshot for the Wright Simulator showing a chart comparison between the portfolio returns and Nifty returns for the strategy detailed above. As you can see the portfolio returns are outperforming the Nifty returns, the Annualized Returns are more than double (almost 2.5 times) the Annualized Risk and the portfolio is showing a very good Sharpe Ratio as well.




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