Understand the Different Types of Stock Investment Strategies

With technology development, it has become easy for traders to gain direct access to the price quotes as well as instant analysis. So, it has become possible for every investor to trade large positions as well as take advantage of short-term profit. 

Types of stock investment strategies

Value stock investing

To become a value investor, it is simple and does not need wide financial background. In addition, there is no need to learn chart analysis or purchase costly subscription service. Basic fundamentals of value investing are –

  • Value stocks go through a phase of high and low demand, which fluctuate their prices but its intrinsic value is same. Therefore, research and buy stocks at bargain prices, which other investors are unaware of.
  • Value stocks carry margin of safety because your potential losses got limited and even possible earnings got improved as you bought them at bargain price.
  • Value investors reject efficient-market hypothesis because sometimes the stocks are overpriced or underpriced with regards to their true value.
  • Investors never follow the herd.
  • Value investing is in reality long-term strategy, which needs patience and due diligence before investment pays off.

Speculations

Speculators earn by buying stock with a hope that price will rise. It is very different than value investors because speculators buy and hold stock patiently for long term to earn profits. Speculation techniques include margin trading, options and hedging. There are huge risks and great rewards that accompany speculation.

A speculator can visit Strategy Stocks website to consult and get help in developing trading strategy. Speculation effects can be aggressive on stock rates with increased activity due to collective response from price patterns, breaking news and earnings. Speculation can make an investor lose everything or make extreme profits in a short time.

Trading

Trader is a person, who sells and buys short-term securities, like Easyjet share, often holding position for not more than a day. The trader is always looking for price fluctuations, so as to earn quick profit and move to next opportunity.

Speculators forecast future prices but the traders concentrate on current trends. Their goal is to earn small profit prior the trend comes to an end. It is just like a hop on hop off bus ride for traders.

Today, day trading is popular stock market strategy because multiple transactions can be conducted with hope for small profits and also use of margin is appealing. Margin traders buy and sell specific security 4 to 7 times a day, so are called ‘pattern day traders’.

Index fund investment

Index fund or mutual fund investment are perfect for investors, who loath risks and wish for predictable returns. They are frustrated by the unreliable returns and time needed to implement fundamental or speculation strategy effectively. Through mutual fund such securities buyers can manage their portfolio professionally.

Index fund means investing in wide market index like the Nifty or the Sensex. Every stock in these indices will be represented in the investor’s investment portfolio. In theory, it ensures a performance similar to that of index that is being tracked. The group of securities can be equity or bond-oriented instruments.

A fund manager determines the stocks to be sold or bought as per the configuration of underlying benchmark. Great investors recommend that investors need to invest in index funds even if there is not much action but is a smart move.