Investment Strategies

Growth Investors are constantly trying to find tomorrow's strongest stocks. They look for companies in the early stages of their growth cycle that are already showing signs of dominance. When they find a promising stock, they buy it even if it has already experienced rapid price appreciation in the hopes of riding the wave as the company grows and attracts more and more investors. There isn't a lot of analysis involved in growth investing, it is a criteria based strategy. When we say criteria based, we mean Growth Investors are much more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow's leaders than they are about the fundamental or technical aspects of a stock.

Many beginners have trouble deciding which stock market investing strategy to choose. Often they are even confused about what strategy they are currently implementing. This happens because most people learn about investing from their friends, coworkers, family, and whatever investing related magazines, newspapers, and web sites they follow. What they wind up with is a hodgepodge of random information to base their investments on rather than a cohesive strategy. The greatest danger in this is that, while most strategies work quite well on their own if implemented properly, they are usually quite disastrous when investors try to combine them together.

When selecting an investment strategy that fits these times, it's important to remember that you get the chicken by hatching the egg, not by smashing it.

History does not always repeat, and there is a sizable hole that consumers and investors have to climb out from. However, there are reasons to think that the steps taken by the Federal Reserve and U.S. Treasury to alleviate the financial crisis and to get credit flowing again will ultimately bear fruit.

Many people will tell you that Mutual Fund Investing isn't actually a strategy, but we disagree. When you invest in mutual funds, you and many other investors are pooling money together and trusting a professional fund manager to achieve your investment goals. That makes this a unique approach. There is no other strategy that is based on the investing talent of someone other than the investor. The investor's strategy in this case is to get very good at finding great funds run by talented fund managers whose investing goals are in line with their own.

Technical analysis is the complete opposite of fundamental analysis so it's no wonder that Day Trading is our least favorite strategy, we're biased. This is a high-risk strategy, even for those that master it. The vast majority of new day traders don't last a year, they lose enough money to be scared into a different strategy, sometimes entirely out of investing. Day Trading requires an enormous tolerance for risk and uncanny intuition that only comes from years of study and experience.

Momentum Investors try to keep all of their money invested in the current top performers all of the time. Great investments to a Momentum Investor are those that have outperformed the market and their peers during the last 12 months, with more emphasis on the most recent months. They don't worry about asset allocation or diversification because their strategy doesn't allow them to, the goal is to always be in the most popular and fastest growing investments.

Income Investors search for investments that are safe and stable and that will provide a steady stream of current income. This doesn't mean that if their portfolio grows 10% this year that they will take that money out of their account and use it as income. In fact, Income Investors try very hard to avoid touching their principal. Capital preservation is key to this strategy because they are using their investments to generate income. The two most common forms of income that these investors seek are Dividends from Stocks and Coupon Payments from Bonds.

Value investors, often referred to as Contrarian Investors, are always on the lookout for underpriced stocks. This is a research-intensive strategy, in order to excel you will need to get very good at interpreting a company's financial statements, financial metrics and statistical measures. Value Investors use analysis to determine whether a company is trading above or below its fair value and they only buy when they find a strong company that they believe is undervalued. Undervalued is a term that you'll hear value investors use a lot because identifying and buying undervalued stocks is the cornerstone of the strategy.

Since I pointed out one of my favorite strategies I thought it was only fair that I point out my two least favorite strategies. Market Timing is one of them. No investor has ever been able accurately time the market for long periods of time. However, I will provide a thorough review because there is always a small population of people that want to reap all the benefits of investing without taking any of the risks regardless of what reality and conventional wisdom have proven over and over again.