A List of Popular Investment Strategies
- What are investing strategies?
- Why should you have investing strategies?
- Different types of investing strategies and their benefits
- Some popular investment styles of market mavens
Value Investing
Value investing is all about buying quality stocks at bargain prices, essentially waiting for a ‘sale’ in the stock market.
Warren Buffett, one of the most successful investors, is a strong advocate of this approach.
In value investing, you seek stocks that are undervalued relative to their intrinsic worth. This involves analyzing a company's fundamentals and projecting future cash flows, discounted at an appropriate rate.
Unlike other methods that compare companies with each other, value investing focuses on understanding the absolute worth of a business.
Quick Tip:
Look at metrics like Price to Book Value (P/BV).
For example, if a stock's share price is ₹100 and its book value is ₹130, it could be signaling an undervalued opportunity.
Growth Investing
Growth investing focuses on identifying companies with strong and consistent growth in earnings and revenue.
Unlike value investing, growth investing is an active strategy where investors aim to tap into the fastest-growing sectors.
Technology and software companies have historically been great examples of growth stocks.
Key points to remember:
Growth stocks often carry high valuations.
They must consistently justify these valuations through earnings expansion.
High valuations can lead to sharp corrections if expectations are not met.
For successful growth investing, assess not just current earnings but also historical earnings trends. This analysis helps predict whether a company can sustain its impressive growth trajectory.
Momentum Investing
Momentum investing is based on the simple idea that stocks in motion tend to stay in motion. Investors using this strategy bet that rising stocks will continue to rise, and falling stocks will continue to decline.
While it shares some similarity with growth investing, momentum investing focuses solely on price trends, not on company fundamentals.
Typical tools for momentum investors include:
Trend Lines: Connecting price points to reveal an upward (bullish) or downward (bearish) trend.
Moving Averages: Observing whether prices remain above or below a moving average to gauge bullish or bearish sentiment.
Momentum investing is often short-term in nature and carries higher risk and reward potential.
Points to Remember
Always select an investment strategy based on your financial goals and comfort with risk.
Value investing means identifying strong companies available at discounted prices.
Growth investing focuses on businesses with a proven and strong earnings growth trajectory.
Momentum investing rides ongoing price trends for potentially quick gains but requires active monitoring.