Which investment strategy focuses on the long-term growth potential of companies?

The correct answer focuses on investing in companies that demonstrate strong potential for growth over time. Growth investing emphasizes acquiring stocks of companies that are expected to grow at an above-average rate compared to their industry or the overall market. Investors who adopt this strategy typically look for companies that are reinvesting their profits to expand their business and increase market share, often prioritizing revenue growth and innovation over immediate profitability.

This long-term perspective is rooted in the belief that over time, the value of these growth-oriented companies will significantly increase, leading to substantial returns for investors. This approach can sometimes involve a higher level of risk, as growth stocks may experience significant fluctuations in price and are often valued based on future earnings potential rather than current cash flow or dividends.

In contrast, the other investment strategies focus on different aspects of investing. Value investing, for instance, seeks undervalued securities with the expectation that the market will correct the pricing over time, while market timing revolves around short-term movements in the market, trying to capitalize on price fluctuations. Income investing is primarily concerned with generating regular cash flow from investments, such as dividends or interest, which may not align with the growth-focused objectives of long-term capital appreciation.