Question

Why retail and institutional investors may become too excited about glamour (or growth) stocks versus value stocks? Suggest reasons

Answer 1

Investors like growth stocks because they exhibit above-average revenue and earnings growth potential when comapred to the peers in the industry.

The perceived value of the growth companies rises in the eyes of growth-minded investors. Over the period time, these growth companies becomes leaders in the entire industry bringing huge returns for the growth inclined investors rather than value inclined investors.

Growth stocks tend to have relatively high valuations as measured by price-to-earnings or price-to-book value ratios.

On the other hand, value stocks trades for relatively cheap valuations relative to their earnings and long-term growth potential.

Value stocks don't have hasty growth features. value stocks tend to have steady, predictable business models that generate modest gains in revenue and earnings over time. Sometimes, you can find value stocks with companies that are in decline too.

Hence, investors like to invest in growth stocks rather than value stocks