As an investor you will come across many different strategies to make money with shares.
So which one is right for you?
First let’s take a look the main strategies in the marketplace:
- Buy and hold strategy.
- Value Investing – looking for undervalued companies.
- Growth – looking those companies that have high potential for growth.
- Technical Analysis – looking at momentum and movements in stock.
- Index approach.
Each approach is different and each needs to be assessed in retailing to the following factors:
- How much you have to invest.
- The time you have available each day to spend on your investments.
- The economic cycle we are in at any point in time.
- Your level of understanding of the stock market and the financial system.
My first tip for any new or seasoned investor is to continually improve your education and knowledge of the stock market and our financial systems.
The more you understand the better placed you will be to make sound decisions. Your education never stops, you must commit time each day to improve your knowledge or you will fall behind the game.
The second tip is you need to understand all of the above approaches. It then comes down to how comfortable you are with the strategy you have selected.
Trying to swap from one to the other chasing the best returns will usually end in disaster due to one variable... timing.
Getting the timing right to effectively and profitable switch from one investment style to another is nearly always wrong. The common error is that people switch styles at the end of the cycle of the style they are moving to.
This is usually because their investments are under performing in the period leading up to the switch. If you do not switch at the start of the cycle you will lose money as you are buying at the high of the cycle.
I find that the best overall approach is to choose an investment style you are comfortable with and maintain the core of your investments in this style.
You can then take a small percentage of your investments and invest in the right style for the economic conditions to try and boost your overall performance. You must accept that your performance will lag the market but it is a long-term game and what you lose in one cycle you will pick up in another.
So which style suits you?
Buy and hold strategy is good for investors with large portfolios and plenty of free cash flow to take advantage of any new opportunities.
Value investing is focused on your investment providing you high level of income and long-term growth. Good for people who need to live of their investments.
Growth investing is good for those who do not need the income and have high disposal income to invest in new opportunities.
Technical Analysis suits traders and those who may need to sell something to raise funds for new investments. It fits in well with a growth or value investment strategy for those with limited funds.
Index funds suit those with a limited amount to invest as it allows you to get a diversification spread of investments with a small amount of funds. The wider the diversification, the less risk.
For most investors a combination of these will produce the right result.
Beware of any adviser who tells you that there is only one way.