Simplifying Stock Market Trends

“The Market is up today” brings all sorts of reactions to investors but some reactions are not warranted. Defining “The Market” is complicated because there are a lot of different companies with very different performance trends. You can buy stocks and be invested in “The Market” and still perform very differently from what you see in the news. Understanding performance starts with understanding two different types of stocks – Growth and Value.

• Growth stocks

A company develops a new product and pays its employees for 5 years during development. It is investing in a future capability to make money. This is a Growth company – they are investing in themselves expecting future growth.

Investors usually make money on a Growth stock by buying the stock and waiting until the price goes up and then selling the stock at that higher price. This is called “realizing a gain”. These companies usually don’t pay strong dividends because they are using their money to grow.

• Value stocks

A company develops a product and sells that product and the revenue from the sale is used to pay for the development of the product. They aren’t spending money for the potential of future profit – they expect to profit now. They invest money and generate a profit now.

Investors usually make money on a Value stock through dividends. As the company makes money through selling its products, it pays part of that profit out to the shareholders of the company as a dividend. The price may also go up over time but the primary focus is paying out profits now instead of reinvesting them into the company to grow.

Clearly some companies will be part growing new products for the future and some will be part selling their existing products now. Furthermore, indexes can be mixed as well. The Nasdaq tends to be more growth-focused stocks, the Dow Jones more value-focused stocks, and the S&P500 a mix of both growth and value stocks.

By Cammie Humke, Registered Representative at The Humke Group, Inc

Located at 555 S. Randall Rd in St. Charles, IL, phone 630-377-7133

The Humke Group, Inc is an independent firm. Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Summit Financial Group, Inc., a registered investment adviser. Summit and Cetera are affiliated and under separate ownership from any other named entity.

Opinions expressed are that of the author and are not endorsed by the named broker/dealer. All information herein has been prepared solely for informational purposes. All investing involves risk, including the potential for loss. Past performance is not indicative of future results. Investors cannot invest directly in indexes.