Investment Strategies: Comparison Of Individual Investment Strategies. You can invest actively or passively, in individual stocks or funds, including real estate or not. There are numerous investment strategies. Here are some investment strategies to find your way to invest.
Investors who invest in high-growth companies and hope for massive sales growth follow the so-called growth strategy. This can be found above all in high-tech markets such as the software industry and information and biotechnology.
The shares of these mostly very young companies are at the very beginning of their development. However, this is precisely why they often have a high price-earnings ratio (P / E). A high P/E ratio means that the company’s share price (market valuation) is high compared to its earnings.
But not only on the stock exchange but also with crowd investing in start-ups, you can pursue this investment strategy and achieve high profits.
Value investors look specifically for undervalued companies whose potential for price increases they rate as high based on fundamental analysis.
In contrast to chart analysis, fundamental analysis is not based on a consideration of past chart patterns, but business data and the economic environment of a company – the so-called essential data.
Prominent representatives of value investing are Warren Buffet and Joel Greenblatt. Value stocks are, for example, Daimler or Coca-Cola.
This classic strategy relies on the long-term profitability of investments. It dispenses with market timing because it assumes that it is hardly possible to find the most favourable entry and exit times on the financial market since the most massive price movements would take place within a brief period.
Besides, speculation in the markets could lead to significant exaggerations and understatements over short periods. As a result, prices can temporarily deviate significantly from their long-term averages. In the long run, however, the fundamentals of a company prevail, which determine economic growth, company profits and thus stock prices.
A well-known proponent of this strategy was André Kostolany. His most famous piece of advice was probably to go to the pharmacy, get some sleeping pills, take some, buy some international standards, and sleep for a few years.
Another investment strategy is to buy individual stocks when the majority of market participants are pessimistic, and sell again as soon as the euphoria has reached its peak. In reality, however, this anti-cyclical or contrarian strategy can hardly be maintained.
However, it is hardly possible to predict course reversals. This is what sentiment analysis tries: It researches investor psychology in certain market situations. However, it is questionable whether investor sentiment can help to make assumptions about future price developments. On the other hand, it demands an almost superhuman psyche from the investor to continuously swim against the current. Also, investors could have a hard time dealing with stocks that go up or down over the long term.
Procyclical Strategy / Momentum Strategy
With the opposite approach to the contrarian strategy, the investor mainly buys securities from which he expects an accelerated increase soon.
The procedure of the dividend strategy is to select companies with a high dividend yield for your portfolio, which guarantees regular distributions. The dividends are not to be underestimated, because not only price increases increase the result, but also good dividends.
“Blue chips”, the shares of large listed companies with the highest turnover, are subject to lower price fluctuations over the long term than small caps. They are characterized by a high trading volume and more outstanding commitment from institutional investors. If investors specifically select these companies with stable sales and earnings, they take lower risks when investing.
Those who want to invest passively can choose investment products that track one or more indices. These are passive funds – also known as ETFs. ETF is the abbreviation for Exchange Traded Funds. The return corresponds to the respective index that they track. It’s up to the region and the focus of the index; it could vary according to them.