I tried to describe the most common techniques, classify them into different categories. That’s why they intersect with each other in many ways. After reading this article, you will be able to determine which type is the best for you and begin to make your strategy. Let’s sort it out in order!
Why would an investor need a strategy?
The absence of an investment strategy may cause mediocre results and subsequent disappointment in the stock market.
In any case, there should be a clearly defined goal and strategy, whether it is business or personal life. Which of your relatives or acquaintances has led to the success of the aimless wobbling? I don’t have such examples.
Strategies for the investment horizon:
Short-term investment strategy
Division is conditional and there are many opinions on the time frame. Short-term investments are more like trading. Therefore, those who buy securities to sell them in a day or a week can hardly be called investors.
The first two strategies attach great importance to the so-called “entry point” into the market – the search for the optimal price for speculative buying. Very often this search is accompanied by technical analysis and news tracking.
Medium-term investment strategy
Here, too, the goal is important: at what price the asset should be bought and sold, and the estimated period (on average, from one month to one year). “Stop Losses” in such strategy become less actual. Besides technical analysis, fundamental analysis is applied.
Very often brokers act as inspiration for such a strategy. They make various investment ideas on the basis of the latest company reports and news about important events related to the issuer’s business. This is how brokers encourage you to make a deal in which all responsibility for the decision lies with you.
Long-term investment strategy
This strategy involves the purchase of assets for a period of several years and may not have a finish line. This strategy is adhered to by the Rothschild clan, as well as a great visionary from Omaha – Warren Buffett, who calls eternity the best investment term.
Capital invested in securities brings in passive income every year. This income is usually partly reinvested by rich people, i.e. part of the profit is reinvested in securities. Thus, capital grows like a snowball.
Active investment strategy
This includes frequent transactions, continuous search for new ideas, trying to play on news and dividend expectations.
Can be used in any investment horizon. But as a rule, it is more often used by investors who want to get the maximum profit in a shorter period of time.
As part of a long-term strategy, an active investor is someone who looks at companies’ accounts in search of potential undervalued shares. He is pragmatic and always ready to sell shares of those companies that have failed to meet his expectations and have exhausted their potential.
Passive investment strategy
Systematic regular purchase of assets with rebalancing of the investment portfolio no more than once a year.
The stock exchange is one of the few places where lazy people are encouraged. You just buy a good business and wait for the result.
High risk investment strategy
The purpose of this strategy is to maximize the potential profitability due to increased risks.
Moderate investment strategy
A kind of “golden mean” when the portfolio is divided into different classes. Assets – from different sectors, maybe a small amount of risky shares or bonds (not more than 10%). It is also important that there is no distortion in the direction of one of the assets, i.e. none of the instruments should have a share not exceeding 10-15%.
Low risk investment strategy
Suitable for people who primarily want to save their capital. This makes it possible to invest in federal loan bonds (OFZ).
Value investment strategy
Search for undervalued assets, the market price of which is much lower than the real one. The real one is how much all the assets of the company are worth.
Its essence is to invest in growing companies with a growth potential of at least 20% per year. Those companies that do not pay dividends tend to invest almost all their net profit in their development. This contributes to the growth of business, and therefore to the growth of quotations.
This includes the selection of companies that regularly pay high dividends. There are a lot of such issuers in the Russian market. The size of payments is often higher than the bank deposit, and sometimes reaches double digits. This is due to the retained earnings of previous years. This does not happen often, and a patient investor receives a so-called “presence bonus”.
Trust management strategy
When there is no time and desire to study stock market instruments, many people try to find someone who will manage their finances. Trust management in its classical sense is when you give your money to a certain management company. It in turn receives commissions from the profits.
Investment is a long-term and continuous process. When I hear about goals such as saving money for a vacation in 4 months, for me it is the same as setting a goal to lose weight by summer. You are making some efforts, the time is right, you are satisfied with the result, but you are back on track.