Investing strategies are often flexible in that you can make changes or tweak a few parts to match similar changes in your goals or risk tolerance.
Of course, changing the strategy can often be expensive. So it becomes very important you know how suitable (or not) a strategy is.
The following are some timeless investing strategies you should learn before you commit to the financial markets.
Value investing is similar to bargain shopping, where you find stocks with market prices lower than their actual value.
In part, this strategy assumes the market sports some level of irrationality, which provides the opportunity to investors to acquire assets at a discounted price and make some money off of it.
Perhaps the most popular value investor in the world is Warren Buffett. For him, value investing means investors should focus on buying businesses instead of stock tickers.
Value investors also have tools at their disposal if they cannot make lengthy research to find the next best value stocks.
Among the most popular tools or metrics they use are the price-to-earnings ratio (P/E) and the earning per share (EPS). These tools help investors understand the financial and fundamental disposition of the company.
Growth investing, meanwhile, refers to finding stocks with strong upside potentials, rather than stocks at bargain prices.
Growth investors scrutinize the prospects of the industry in which the stock happens to be. In general, there must be evidence of widespread and solid demand for the company’s services or product.
There are no hard metrics to guide a growth investor. However, there are factors which are worth considering.
For instance, survey found growth stocks usually outperform in times of falling interest rates. Then, investors also look at the company’s management team. Stellar leadership is necessary to achieve profit-making growth.
Momentum investing, in a nutshell, is an investor riding the wave. For momentum investors, winners will keep winning and losers will keep losing—until they don’t.
This strategy uses a data-driven approach, looking for patterns in stock prices using historical data to help them.
Investors using momentum investing need to be quick and ready to buy and sell assets all the time. The profits also accumulate for months, and sometimes even years. So patience is necessary too.
In general, momentum investing is profitable except if it comes at the limitless downside risks coming from short selling.
Dollar-cost averaging (DCA) refers to making regular investments in the markets over time. You can, however, perform DCA while also using another type of strategy.
Since investments happen in regular increments, the investor effectively flattens the peaks and valleys of asset prices.
So when the prices are up, you invest the same amount and buy fewer shares. When prices are down, you invest the same and buy more shares.
The DCA approach helps in reducing risk levels and the effects of volatility. It’s generally considered to be a good strategy for all types of investors.
The key to success is awareness. That’s why you need to go and check Finance Brokerage educational websites available. And you can choose the one that suits you the best in the Online Trading Courses offered.