Know Some Of The Most Popular Investment Strategies That Work And When Dealing With the Stock Market
Mon, May 6, 2013
Top Investment Strategies
Investing can be the most rewarding and freeing experiences you ever have.
Or it can be the most stressful and destructive experience you ever go through.
The first step to getting on the successful path to investing is choosing an investment strategy. Here are a few of the most popular and one that always works.
Popular Investment Strategies
Now there are a number of paths you can take to reach those financial goals. These paths are called strategies.
Note: There are a number of popular investment strategies which work. Or, in other words, help you make money. Not all of the popular investment strategies will work.
One of the most Popular Investment Strategies is to “buy what you know.”
This strategy requires you to look at the companies which make products you buy and use. For example, if you have a Verizon (NYSE:VZ) cell phone plan or drink Starbucks (NASDAQ:SBUX) coffee, the theory goes that if you like these products, many more people will and do too. And the company that provides them will grow over time because they provide a good product or service. And you would know because you use it.
That’s buying what you know. But it’s just one of many investment strategies.
Another popular investment strategy is to “buy the market.”
What I mean by buying the market is to buy the entire stock market. Then whether the market goes up or down, your portfolio goes right along with it.
This strategy normally involves buying into a fund or an Exchange Traded Fund (ETF) that buys an entire index. The most common index is the S&P 500 Index which tracks the 500 of the largest publicly traded companies in the world. There’s also the Wilshire 5000 Index which buys 5000 of the largest publicly traded companies. There are many more broad market indices which you can invest in, but you get the point.
The thing about this strategy is the investment results are the same as the overall market. Your investment goes up and down with the markets. This is, of course, great in a rising market. But it’s disastrous when the market falls. Given the future outlook, there will be a lot of ups and downs and no steady long-term bull market for the overall market.
Another popular investment strategy is to follow what’s called “insider buying.”
You see, when a company insider – like the CEO, CFO, or a director – buy or sell shares of a company, they have to disclose that in a filing with the Securities and Exchange Commission.
The theory behind the insider buying strategy is that the insiders who know the company best are only going to be buying if the company is doing well.
This strategy makes a lot of sense on paper and is followed by a number of investors. After all, the insiders who know the company best are putting their money into the company. There has to be something good going on, right? Well, the theory makes sense. But the results don’t always.
There are dozens of more popular strategies too. Any list of investment strategies would include Contrarian (buying what’s out of favor), growth investing (buying what’s hot), value (buying what’s cheap), income investing (seeking to get the maximum amount of income from your investments), and dozens more.
There are even more investment vehicles to use to apply those strategies to your portfolio. A list of popular investment vehicles would start out with stocks, bonds, Exchange Traded Funds, mutual funds, hedge funds, private equity, options (and all derivatives) and real estate.
All of which offer different risks and rewards. For our purposes, we’ll focus on stocks. And to invest in stocks successfully, you’ll need more than just a popular strategy. You’ll need one that works.
One Investment Strategy that Always Works
The key thing to remember about investment strategies is that not all of them work all the time. That’s what makes investing so challenging.
However, for long term investors (those looking out more than five years), there is one strategy that has worked for investors for centuries.
That’s buying great businesses at a great price.
That sounds simple. And it is. But the application of the strategy is much tougher than it sounds.
There are so many factors which can and will cloud all investor’s judgment from time to time. They include stocks getting hot, sectors which start taking off and you’re not in, and massive market-wide crashes which cause fear and panic throughout the markets.
The first ones where a stock or sector gets extremely hot and everyone is talking about it. Odds are by the time you hear about it, it’s too late. Without fail, investing into today’s hot sector inevitably leads to tears tomorrow. Avoid whatever is “hot.”
The latter event is the market crash. They happen every few years. They are unavoidable. But you have to look at them the right way.
Market crashes are always portrayed as something bad. But they are good.
When a market crashes, the prices offered to investors are often lower than they’ve been in years. As a result, a market crash is the best time to pick up great businesses at great prices.
Finally, no strategy will work if an investor lets his emotions get in the way.
Find a good investment strategy. Learn it. Stick to it. And you’ll be well on your way to being a successful investor.
Executive Editor, Contrarian Insights
The Group of Big Investors in United States.
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