INVESTMENT STRATEGIES

There are a number of different ways to make money from the markets and so there are a number of different strategies available to you. Which strategies you use depends on your personal preferences as well as your goals and risk levels.

You will find many different versions of strategies and different ways to explain them. To simplify it I see there being 3 main strategies.

VALUE INVESTING OR CONTRARIAN INVESTING

A value investor is someone who is looking for a company that is trading below their true value (also know as intrinsic value or fair value). This strategy is about buy quality companies at a discount and waiting for the market to catch up or correct providing you the opportunity to sell at a much higher price.

This type of investing requires you to understand the fundamentals of a business and understand what the true value of the company is vs it’s stock price.

People also often use the term Contrarian Investor. Contrarian investors look to take advantage of major market down turns such as in war time or recessions for example. A contrarian can also be described as someone who goes against the norm and will buy when the majority are selling and vice versa. There is a famous quote from Warren Buffett “Be fearful when others are greedy and greedy when others are fearful”.

Some people identify a Value Investor and a Contrarian Investor as two different types, but the principle is the same as they both look for good companies that are undervalued in the market place.

INCOME INVESTING

Income investors are looking for stocks that pay strong dividends or income bonds. The idea of incomes investing is rather than looking for big movements in price the investor gets regular income paid by the company from the profits.

These companies tend to be large companies that are not necessarily growing a rapid rates anymore but are bringing in profits which can be shared to among the shareholders.

There are two types of income investing. The first is the where the investor wants the income as part of their living income and takes the payment each time. The second type is where the incomes is reinvesting into more stocks or the same company or different. This is known as compounding, which is a very powerful way of investing.

GROWTH INVESTING

Growth investors look for companies that growing fast or significantly. The idea being that the company will grow considerably more over the coming years and the stock price will rise with it.

These types of stocks can often trade at a much higher price as they can be priced for their future potential rather than their current worth. This can result in large price increases if a company delivers big growth, however you need to be careful the price does not drop just as fast if they fail to deliver.

Growth companies often do not pay dividends as all their profits are put back into the business for future development and growth.