• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

GARP investing basics

Value investing focuses on the financial fundamentals of a company. It is taught by legendary investor, author and professor Benjamin Graham. With value investing you calculate a stock's intrinsic (or book) value by looking at a company's underlying assets and earnings. Simply stated, if the current share price is below that intrinsic value per share, it's a buy.

Warren Buffett is arguably the most famous value investor. He was a student of Benjamin Graham (as was my grandpa!). And Buffett followed his teacher's value-investing philosophy to become one of the richest people in the world.

Growth investing picks companies that will have above-average growth in their industry or compared to the market as a whole. First, find a growth opportunity that is undervalued. Then ride the price up when the earnings prove you right. However, if earnings fall short of expectations, you are sitting on a much bigger risk for losses. Growth investors hunt for the next Amazon, Apple, Facebook or Google.

And if you can find a stock that passes checks for both value and growth investing, you're in the sweet spot for GARP investing.

Invest in real estate without the headache of being a landlord

Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.

The best part? You don’t have to be a millionaire and can start investing in minutes.

Learn More

Hunting for growth stocks

Growth is the first word in “growth at a reasonable price.” Start your search for stocks that you think will grow in the future. The most popular metric for growth is PEG, short for price-to-earnings growth.

The price-to-earnings ratio, or P/E, measures the share price compared to the company's income. It shows the multiple of the company's earnings investors are willing to pay for one share of stock. Calculate this ratio by dividing the company's share price by the year's earnings. For example, if a company has a stock price of $10 per share and annual earnings of $2.50 per share, the P/E ratio is 4.0 (10 / 2.50). This 4.0 means investors are willing to pay four times the company's earnings to buy a share of stock.

Compare this ratio to other companies in the same industry to get an idea of what investors expect in the future and if the stock may be overpriced or underpriced.

Savvy investors chart historical earnings to find a trend. Next, they project future earnings (or find a trusted source that does this for them). Now you can calculate a forward-looking PEG by dividing the P/E by the earnings growth. For example, if a company has a P/E of 4.0 and expected growth of 10%, the PEG would be 0.4 (4 / 10). If this number passes your benchmark, the stock goes on to round two.

Some stock charting services also offer GARP specific charts. StockRover, for example, has three GARP screeners. You can find out more about their screeners and other investing tools on our StockRover review.

Add a filter for value investments

Now that growth is taken care of, focus on the “at a reasonable price” part of GARP. Put on your Warren Buffett hat, because we are going to get our hands dirty with value investing metrics.

In addition to the P/E ratio, value investors put a big emphasis on instrinsic or book value. The book value is the total value of a company's net equity. That's assets minus liabilities. The book value per share divides book value by the number of shares outstanding. If the book value per share is higher than the share price, you may have stumbled onto an excellent, low-risk investment opportunity.

Debt-to-equity and free cash flow are two other valuable metrics for value investors. Check out Benjamin Graham's classic book, The Intelligent Investor, or Warren Buffett's annual letters to Berkshire Hathaway shareholders as resources to learn more about value investing.

Unlock the power of short selling for bigger returns

Explore the world of short selling with our comprehensive guide. Learn how to turn falling stock prices into profit and elevate your investing strategy today!

Learn More

Joined at the hip

Buffett famously said that value investing and growth investing are “joined at the hip.” The two approaches use many of the same metrics to decide if a stock is a good buy. But if you want to truly unify the two theories, you fall into the camp of GARP investors.

This portfolio style has some added risk of underperforming in an economy where growth projections don't materialize. And if huge growth arrives like a tidal wave, a GARP portfolio would underperform compared to a pure growth strategy. But if the economy turns sour, the value aspect of the portfolio should act as a buffer that pads you from outsized losses.

There's nothing wrong with calling yourself a GARP investor. If you do it right, you could wind up GARPing yourself to excellent returns.

Sponsored

Follow these steps if you want to retire early

Secure your financial future with a tailored plan to maximize investments, navigate taxes, and retire comfortably.

Advisor is an online platform that can match you with a network of vetted fiduciary advisors who are evaluated based on their credentials, education, experience, and pricing. The best part? - there is no fee to find an advisor.

Eric Rosenberg Freelance Contributor

Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.

Explore the latest articles

How to invest in gold

Here's how to diversify your portfolio with one of the most popular precious metals.

Sigrid Forberg Associate Editor

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.