1. Value Investing
Value investing is a trading strategy which is dependent on financial analysis and requires the investors to remain in the markets for a long time. The major focus in value investing is to understand the actual worth of a company’s stock or share and to select the stocks which are undervalued and are being traded at a price lower than what they deserve.
The strategy of value investing looks for these gaps in the markets and tries to take advantage of it, because the strategy believes that stock market prices always gravitate towards their fair value. This is also the fundamental investment strategy and has made many investors successful and wealthy, including the Oracle of Omaha warren Buffett.
Value investing is considered to be a passive trading strategy as it adds value over a long period of time.
While the value investing strategy has the potential to earn exponential gains for the investors, the risks are also invariably present and everything depends on a person’s stock selection strategy. There are many indicators which can help you decide the stocks for value investing, but it often takes more than just understanding indicators to pick the right stocks for value investing.
2. Momentum Investing
Momentum investing is the strategy in which investments are done following the trend of the markets. Momentum traders would buy the stocks ahead of a possible uptrend and sell them before the markets fall, only to buy them later at cheaper prices. This pocess of selling first and buying later is called short selling. In India, short selling in cash segment can only be done on intraday basis and for longer duration, short selling can be done using derivative instruments.
For momentum trading strategy, the most useful took and method is technical analysis, which can give a fairly accurate prediction of the upcoming trend in the markets. This type of a trading strategy is more active form of strategy where there are fixed buying and selling levels and the orders need to be executed accordingly.
As compared to value investing, it can be a riskier strategy, but the stock selection and picking of trades can be done fairly quickly using technical analysis tools.
3. Growth Investing
Growth investing focuses on the future growth prospects of a particular stock, sector or industry. Growth investing bets on the company or the sector which has the most potential for growth in the future and has the capacity to make use of the opportunities of growth to deliver results and move ahead on the path of success. Most of these companies can be identified to be belonging to the midcap and small cap sector.
It is similar to evaluating a company as a venture capitalist, only that the company is listed on the markets.
Value investing and growth investing can be compared on many occasions, but while value investing focuses mainly on the share price of a company which is undervalued, and is worth more, growth investing looks for companies whose value will rise in future.
Growth investing is also different from speculating because this form of investing requires a large amount of study and research about the economy, industry sector etc.
4. Cost Averaging Strategy
This strategy involves investing in the markets on a regular basis over a long period of time. Cost Average strategy does not believe in putting the money in the market all at once, but rather, choosing different time periods to put the money in the markets. The most common types of stocks in which people prefer to put their money on a regular basis are blue chip company stocks and defensive stocks which are bound to show a strong and sturdy growth.
Periodic investments in the stock of one company, when done at different points, helps in averaging the per share cost of the purchased stock.
A cost averaging method is best suited for people who do not have a lump sum amount to invest in the markets and want to save over time.
Conclusion:
All these investment strategies can also be done parallelly to make the most out of the market’s investment opportunities. As an investor if you have a sizeable portion of your money to invest in the markets, then you can divide your investing capital in each of these investment strategies to earn benefit out of the markets.
