A Contrarian Strategy for Growth Stock Investing: Theoretical Foundations and Empirical Evidence

Synopsis

Relatively few academics or practitioners have systematically explored growth stocks. Growth stocks usually involve exciting companies whose sales and earnings are growing significantly faster than other companies and the economy in general. This book finds that high expectation growth stocks, or the ones that everyone loves, have poor relative returns. Low expectation growth stocks, however, have strong performance. The author uses the PE/GROWTH ratio to rank the market's expectations for these stocks. The book aims to show how investors may be able to ascertain whether the interest of a public company's management are aligned with those of shareholders. Sophisticated and institutional investors should find the book's detailed analysis and perspective on growth stocks very informative. The short-term mean reverting aspects of growth stocks are uncovered, and other market microstructure anomalies are discussed. The work also addresses practice trading ideas and the need for diversification. The work is intended to be useful as supplemental reading for courses in investment management and finance, as it examines the components of trading costs and presents arguments for a patient trading style.