Serious Money: T Rowe Price, the dean of growth investing, laid down the principles of this investment style in the 1930s. He wrote: "Growth stocks can be defined as shares in business enterprises that have demonstrated favourable underlying long-term growth in earnings and that, after careful research study, give indications of continued secular growth in the future."

Investing in growth stocks provided exceptional returns from the late 1960s to the early 1970s, the late 1980s and, more recently, in the late 1990s, but has been out of favour for the past six years as value stocks blazed the trail.

However, traditional growth stocks look extraordinarily cheap relative to their value counterparts at current prices, while the conditions necessary for the return of this investment style are in place. Growth investors can expect to be handsomely rewarded on a relative basis over the next three years or more.

Unfortunately investors, both professional and amateur, suffer from numerous beliefs and behavioural biases that doom them to sub-par performance.

Too many investors confuse great companies for great investments and typically purchase them with scant regard for valuation.

Most great companies are growth stocks, but not necessarily good investments. Tom Peters outlined the qualities that he believed separated great companies from the rest of the market in the bestseller, In Search of Excellence.

Michelle Clayman, an investment manager, published an article in 1987 in which she compared the performance of the "excellent" companies listed in the bestseller with a group that ranked worst on the criteria outlined by Peters. An investment of $100 in the "worst" group of companies in 1981 would have grown to $298 by 1986, trouncing a similar investment in the "excellent" group, which would have grown to just $182.

Great companies typically deliver sup-par returns because investors fail to ask one simple question - how much of the company's great potential is already reflected in the stock price?

Indeed, many are surprised to learn that the best-performing stock from the original constituents of the S&P 500, which was first calculated in 1957, does not herald from the technology or pharmaceutical sectors. The technology sector, including IBM, lagged the performance of energy stocks, even before the surge in oil prices of recent years.

The best-performer is Altria, owner of Marlboro, the world's leading cigarette brand, which has delivered returns of more than 20 per cent per annum. An investment of $100 in Altria in 1957 would have grown to more than $600,000 (€471,000) today, beating a similar investment in the S&P 500, which would have grown to just $14,000.

The stock has performed so well simply because threats of litigation and legal liabilities has caused investors to pay too little for its future potential.

Investors not only pay too much for great companies but also behave as if the fundamental laws of economic have been repealed. Mean reversion - the tendency for the good to get less good and the bad to get less bad - is the biggest threat to the growth investor, yet many growth investors act as if it does not exist.

The relative profitability of great companies reverts to the mean because success breeds competition while growth opportunities are exhausted as time goes by. Consequently, growth stock status is difficult to maintain, lasting for just four years on average.

Indeed, of the S&P 500 constituents in 1990, just one company has managed to deliver an unblemished record of double-digit earnings growth in each and every subsequent year. Again, most are surprised to learn that the company is neither a pharmaceutical nor a technology company. The record belongs to Walgreen, America's largest convenience drugstore retailer, which recently reported its 19th consecutive year of double-digit earnings growth.

Growth investors typically extrapolate historic growth rates too far into the future and are surprised when the company's earnings inevitably fall short of estimates. The stock price declines sharply in response to the disappointment, but all too often, investors continue to hold the stock, ignoring one of the most valuable investment maxims of all - "ride your winners and cut your losses". This is usually a mistake.

Companies with an established track record typically enter a period of denial after an earnings miss, while investors are happy to accept feeble excuses such as bad weather or unfavourable currency movements as explanations for the disappointment. Consequently, expectations remain too high and one negative surprise begets another.

Despite the initial drop in the stock price, investors would be well-advised to sell, as further disappointment causes the shares to underperform the market for a protracted period of time. Investors need look no further than the performance of Coca-Cola since 1998 or of Dell in recent times as evidence that this process can last not just months but years.

Investors should be aware that growth investing is a "loser's game". Winning such a game involves making fewer unforced errors than your opponent as in amateur tennis. The key to success is not finding the next Microsoft but avoiding or at least, minimising the damage from the companies that disappoint. This requires a focus on the "sell" discipline rather than the "buy" decision.

Most of the problems that a diversified growth investor will encounter in the year ahead are already in the portfolio. However, too many growth investors spend far too much time and energy on researching potential candidates for purchase and inevitably lose the "loser's game".

Mark Twain described it best when he wrote: "Let us be thankful for the fools. But for them, the rest of us could not succeed."

Charlie Fell is an independent consultant and lectures in finance and investment at UCD and the Institute of Bankers in Ireland.