Investment Strategies: The beauty of today’s global investment ecosystem is that it’s no longer just for the big guys. The leveling of the investment industry has made a significant contribution and has enabled the average individual to participate in the highly competitive game of investing, almost on par with the once revered, recognized, and respected businessmen.
However, just because everyone can now trade stocks from their gaming chair while munching on a packet of crisps, doesn’t mean they have to get carried away without limit.
Investment Strategies – You can have all the trading equipment that money can buy, but without also being equipped with a basic knowledge of investment strategies, the former will not matter much.
So, to help better equip you on your investing journey, SPV Mortgages tell you six strategies that every investor should have in their toolbox:
But why have an Investment Strategies?
A strategy is like a game plan that gives a clear direction to your portfolio management while helping you better navigate ever-changing market conditions. Generally speaking, to get from point A to point B, the following three things are needed:
- A goal
- A direction
- Ways to achieve this
Let’s get into the details.
Value investing
A simple way to describe value investing is perhaps to equate it with bargain hunting. If you often shop at your local flea market or bazaar, you’re probably already a value investor.
It also requires being immune to any kind of emotional and irrational thinking, as the very ability to hunt bargains relies on exploiting market irrationalities that have caused the stock to be overlooked or underpriced.
For a novice investor, value investing is challenging because it requires a lot of reading. However, those of you who are curious and patient enough to invest in learning the basics of value investing are likely to make an investment that will continue to generate returns for the rest of your life. One thing is certain, for this strategy to really pay off, you need to have a long-term view.
Investment in growth
If value investing is bargain hunting, then growth investing is potential hunting. Growth investors are looking for innovative companies in fast-growing emerging industries that either have strong upside potential or are already showing above-average upside in revenue.
These are usually companies that get significant media coverage due to their disruptive nature, and they often create their own markets and audiences.
However, investing in growth should not be approached or viewed as speculation, although many inexperienced investors sometimes do. Behind every growth thesis, there needs to be sound business logic and a value proposition.
Momentum investing
If value investors are looking for bargains and growth investors are looking for potential, then momentum investors are trying to ride the waves. They look for stocks with a strong uptrend, primarily using signals from technical indicators.
While this is a perfectly legitimate way to make money in the market (and there are plenty of specialty funds that offer exposure to momentum stocks), this strategy is a radical departure from the basic economic relationship between value and price.
If your main motivation for investing is to pump adrenaline so that it fills you with feel-good hormones, this strategy is a good candidate for that.
However, since this is essentially a market timing strategy, unless you are an experienced chart reader and technical analysis guru, you might find yourself alone on the bandwagon long after the party is over. And it can be a very lonely and painful situation.
Income investment
Value, growth, and momentum investors have one thing in common: they seek to beat the market and achieve above-average returns. They care more about growing their capital aggressively than having cash on hand.
Unlike them, however, income investors focus almost exclusively on investing as a way to generate reliable income, whether through dividends or other interest-earning assets.
This strategy perhaps primarily resembles that of value investing, because it appeals to those with an affinity for lower risk while having the patience and stamina to build wealth over the long term.
Income investors often choose to put their money in well-capitalised companies that pay big dividends, are often leaders in their respective industries, and are usually too big to grow quickly (or at all).
There is a subset of income investors, called growth dividend investors, who attempt to identify growth stocks within the framework of dividend-paying companies.
However, it also assumes a reasonable command of reading and understanding balance sheets and many other fundamental indicators.
For more experienced investors interested in blockchain technologies, you can also look into various stacking opportunities which allow you to deposit your cryptocurrencies and earn interest in return.
Social Impact on Investment Strategies
Social impact investing is becoming an increasingly popular strategy, especially among Generations Y and Z, as it can contribute positively to the world at large.
While the previous century was about maximising efficiency and productivity, which often came at the expense of environmental and social concerns, the 21st century seems to be about maximising impact and ensuring that the wealth you create continues to preserve your planet.
This strategy has shown surprisingly good results over the years, not only in terms of excellent returns, but it has also created a form of pressure for other companies to adopt new policies in order to better respect the basic principles of social responsibility.
This trend is set to continue (and even accelerate) in the future, as more and more people with a particular interest in responsible investing join the markets.
Conclusion
One can write books and research Ph. Ds on many types of investment strategies, with their many definitions and evidence as to why one is better than the other. Ultimately, it’s about choosing what’s right for you in relation to your investment goals.
As an investor, you can go to extreme lengths to avoid identifying strongly with these strategies because it can cause a kind of tunnel vision to form, which you don’t want if you’re looking to have an advantage in the markets.
Author Bio
Name – Jonathan Veers
Bio – Jonathan is Founder of SPV Mortgages. SPV Mortgages can help you find the best limited company mortgage options to push your property investment dreams forward.
We can help you unlock the door to more profitable buy-to-lets via the tax-efficient route of limited company mortgage products. You can easily find out how much SDLT you’ll pay in seconds with our handy stamp duty calculator.
