investment styles strategies

The moment you finally decide to invest, think about how to do it right. This occupation requires strategy and a wise approach. Trading itself implies many withdrawals of securities because of signing which it is not always possible to guarantee a positive result. Today we will talk about how to properly manage your savings and what investment strategy may be right for you. We will analyse the styles of investing and their features.

Risk and reliability

Let’s talk about risk. Risk is the probability that your asset will not rise in price, fall in price, or depreciate before the moment when you plan to sell it. Generally, an asset can be considered risky when it is subject to change. The risk can be realised when the company begins to have problems: because of them, the shares begin to be sold cheaper and cheaper. It happens that prices are applied to all assets at once, this happens during a market crisis.

Reliability is the opposite of risk. That is, these are shares that will undergo minimal changes and will not bring global losses to the company or a specific person in the event of a so-called danger.

Let’s start with styles

Investment style can be defined as the approach that investors take in the process of properly allocating assets and choosing the right individual securities to invest in. The amount of risk you are willing to spend is your investment style. It is built by some factors: your personality, age, personal experience, and financial circumstances.

There are aggressive, moderate, and conservative styles. As a rule, the higher the risks of investments, the greater the profit an investor can expect.

Aggressive. The investor expects a profit of 40-50% per annum. Such investments cannot be called fully safe and reliable. There is a fairly high risk. The contribution goes into the securities of a third-tier company. This type is flexible enough to use leverage and derivatives. This is one of the most attractive managed fund investment options for aggressive investors.

Moderate strategy: yield of approximately 20-45% per annum. Typically, investments go into securities, as well as highly reliable companies and mutual funds.

Conservative. The lowest yield. It can be from 10 to 12%. Usually, in this case, money is invested in gold, platinum and other metals, in OFZ, in conservative mutual funds, as well as in dividend trading. Burn the minimum level of risk, but the level of profit will not suit everyone.

Investment strategies

An investment strategy is a clear plan of action to achieve the desired profit. The strategy may depend on the goals, time, and preferences of the investor. A strategy is also called a set of all parameters that can determine the style of an investor’s behaviour on the stock exchange. These: the frequency of transactions, the reasons for making decisions (for example, it can be news that affects the market), and these are the types of assets that are chosen for investment.

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First, I would like to note that there are active and passive investments:

Active investing is an option that suits you if you are willing to take risks. If you try not to miss all sorts of novelties from market relations – this style is for you. It is most often used in the short term. And the bottom line is that you choose certain stocks and actively follow them. You track the best time to trade and beat the market to make money. It is worth saying – do not count on recent indicators, in this case they do not guarantee reliability. If you have ever used investment funds, you have been actively investing. The fund simply did the investing for you, not you are direct. с But, the result is worth the perseverance and time spent. You pay professionals for quality work, for which they would have wasted a lot of time and effort.

Passive investment. In this case, investors are focused on long-term deposits. Unlike the autistic investor, the passive investor doesn’t look for the right moment to trade, he tracks market-weighted indices or cases. This will reduce the risk due to diversification, like lower transaction costs. A passive strategy means that you spend much less time analysing individual securities and focus your attention more on the correct allocation of assets. 

1.     Investing in growth

The focus of this style of investing is on the stocks of those companies that are growing faster than the stocks of most others. That is, the company clearly has the potential to increase the cost of capital, as opposed to value investments. In such cases, analysts say that the company’s share price is trading lower than it should, for reasons that may change soon. Here, stocks should expect either low dividends or no dividends at all. But this can be offset by high returns.

2.     Speculative investment

The style of investing that can bring the greatest profit to its owner. These are short-term investments focused on the resale of the purchased shares. Even though you can earn a lot of money, there are nuances: it is unprofitable to invest small amounts, there are big risks. Therefore, only professionals are advised to deal with this type of investment. In this case, it is important to have a good understanding of economic issues and stock markets. This is clearly not the place for beginners.

3.     Investment in value

In this case, investors are looking for stocks that have fallen in price. Warren Buffett, a hedge fund manager, highlights the next advantage of this option – stable profitability in the future. It is like a financial pillow with the help of cryptocurrency. You can learn more about this with ICOholder.

4.     Market capitalization

Shareholders use market capitalisation when selecting shares. That is, the number of shares issued, multiplied by earnings and per share. This style of investing includes three subspecies: small, medium, and large capitalisation. Generally, small-cap stocks are considered riskier than large-cap stocks. The latter are more stable and durable.

5.     Buy and keep

A strategy designed for the long term. This option considered the most reliable, because although the share price fluctuates periodically, in general, the stock market is growing along with the global economy. A strategy like passive inversion. The idea is that you buy a stock and just wait until its price rises to your advantage. Even with just one share, you can get your share. It will be transferred to your brokerage account.

6.     Indexing

Also refers to passive investing, where the investor is landing a case that reflects the companies of a certain stock index.

7.     Diversification

There are two types of risk for an investor: systematic and non-systematic. The first is market risk, which cannot be diversified, unlike the second. This is because the unsystematic risk is directed toward investing in one company. When you add companies that produce consumer products to your case, you reduce your level of risk. The main disadvantage is low profitability, but the risks are much lower. But with any strategy, diversification is important.

8.     Heavyweight stocks

This option is the purchase of shares of companies with the largest market capitalisation. As you know, if the index grows, the assets of “heavy” enterprises grow. As a rule, they are stable under dynamic conditions in a growing market.

9.     Promotions at a discount

Detailed analysis of the net asset value at the current moment. With this method, those assets are excluded that, frankly speaking, simply will not survive during a crisis. In this case, you need to look for something creative, reliable, and interesting.

10.  Direct and reverse trend strategy

The direct strategy states that companies are more attractive if they have been successful for more than five years. It means that the trend should continue, and the value will rise. The reverse strategy, for choosing those companies that have proven themselves poorly in the send. According to the theory, they are having unusual prospects for the future.

11.  Promotions for recovery

Such a strategy is based on an analysis called “F – Score”. The analysis is based on factors such as: liquidity, profitability, corporate debt burden (which is currently undervalued in relation to book value), and funding sources.

12.  Value in motion

The essence of the strategy lies in the search for companies that underestimated. That is, they are at the starting point of market recognition. The main criteria: the ratio of price to profit, revenue, book value and cash flow. Only stocks that show signs of movement are interesting, especially in price momentum.

13.  Magic formula

Greenbelt strategy is the most popular. She recommends buying a profitable business at a low price. Attention is paid only to successful companies that over time will be able to attract many investors.

To find such companies, you need to analyse the return on assets, research the shares of big secondary market corporations, conduct analyses that swing the ratio of the highest and lowest indicators (ROA and P / E) or EPS. Insurance and utility companies, banks should be excluded from the entire list. Then you should remove companies with low P / E. And, in the end, you can work with the remaining options – you can invest in them. That strategy is effective in the work for about 5-10 years.

Independent and trust management

Let’s discuss ways to manage assets:

•  Self-employment has such advantages: there are no restrictions on investment objects, independent investment decision-making, like minimisation of costs associated with investing. There are also disadvantages – you will need more time to analyse assets, and there will also be inconvenient taxation.

•  Remote investment has the following disadvantages: the commission is higher in favour of the auditor, the discount, etc. The advantages are that the analysis is more professional and higher than the previous option, so asset management is much better; add to this a more convenient and profitable taxation and the possibility of wide diversification with small assets.

Is it possible to change the strategy?

It may happen that one strategy does not suit you perfectly. In this case, it would be wise to switch to another. Before you will be moving from one strategy to another, it is worth planning for it. By learning from a previous failure, you can improve your new plan. And having a good plan and following it, as you know, you can reach the desired goal. Do not take sudden steps, otherwise you can only make things worse. Look for favourable conditions for you and your money. Be careful and sensible.

Mistakes. How not to do it

Don’t invest everything you have

Calculate initially for the amount that it will not be critical for you to lose. He does not advise risking all savings. Leave them for life and just in case. Do not forget that you should have a financial airbag for the future.

Do not rush to act

If you still decide to trade on the stock exchange on your own, then do not forget to learn this. We advise you not only to read articles about this, but also to watch videos of specialists, to view their blogs. Training courses may be useful to you. Some programs even have demos where you can try your hand without spending money on registration and use.

Don’t get emotional

If you are not yet accustomed to working with money, then here’s some advice for you – do not act impulsively. You can make a lot of mistakes by succumbing to emotions. Beginners often follow their lead and begin to react sharply to changes in the stock exchange: either buy or sell shares when the stock exchange changes. Do not focus too much on observing courses. Not only your wallet can suffer from this, but also your nerves. Of course, control is important, but when it is in moderation. Try to soberly assess the situation: if at a given moment in time something seems unprofitable to you, after a while everything can change radically. Think ahead about your actions.

Do not buy securities in only one industry

It is better to have papers from different industries. For example, when prices drop in one, you will have a chance to earn more in the other. This way you can reduce the risk of losing money. These can be companies that are relevant today, for example: engineering, gas companies, chemical companies, companies related to industry, telecommunications, and others.

Don’t believe in over-the-top offers

Only deceivers can give 100% guarantees. Yes, the market situation is unstable, but this does not mean that success comes at the snap of a finger.

Do not forget about routine work

No matter how boring and uninteresting it may be, do not forget about monitoring the situation. Nothing will help you better in the situation of studying exchanges than comparisons and statistics of these exchanges. Conduct research, collect information about promotions and current news. So, you will not only understand better, but also spiritualise the level of risk in your work.

Conclusion

Creating your own strategy and following its goals and plan is considered an important condition for achieving the desired result. If you and those with whom you work follow the rules and advice that you discuss and approve in advance, then you will have a high chance of increasing profits. And yes, as you can see, there is no right or wrong investment strategy. There is one strategy that may suit you perfectly, and there is not suitable at all. Sometimes it’s not easy to find the perfect one.

Choosing for yourself the right answers to questions such as: why am I investing? Long term or short term? Am I willing to take risks or not? Am I ready to continue this activity on my own or will I invest with the help of a consultant? Can I be a consultant myself? you can choose exactly what will bring you pleasure while working, as well as the desired income. Good luck to you!

By Anurag Rathod

Anurag Rathod is an Editor of Appclonescript.com, who is passionate for app-based startup solutions and on-demand business ideas. He believes in spreading tech trends. He is an avid reader and loves thinking out of the box to promote new technologies.