For beginners, stock investing may be a bit overwhelming. But if they want to take the plunge, it’s necessary that they learn some of the most popular and effective strategies.
In this article we’re going to discuss some of the most commonly used investing strategies by stock investors. See if any of them appeals to your investing personality and try them out.
Value Stock Investing
You can compare value investors to bargain shoppers. That’s because they try to find stocks that are practically “on sale.”
These stocks are on sale because their real or intrinsic value is much lower than their current price.
As such, value investing lets one investor to assume that the market is guilty of irrationality to some degrees. In theory, such irrationality gives them chances to get a stock at a discounted price and make money from that discounted price.
Although finding an undervalued stock sounds like a lot of work, it doesn’t really require you to scour over tons of financial data. You can find value mutual funds that give you the chance to acquire a basket of stocks that are considered to be undervalued.
The Bigger Picture
For value investors, the bigger picture is more important than the temporary fluctuations or knockout performances.
That means a value investor sees the market as a market of businesses, not only stock tickers or symbols.
Growth investors are those who seek companies with strong upside potentials when it comes to the stock’s future earnings. In other words, they search for stocks that can go boom in the future.
You can say that they’re looking for the next “rock stars” of the stock market. However, don’t think that growth investing is simply and purely a speculative play.
Evaluating the Stock’s Potential to Grow
Growth investing requires the investor to evaluate the stock’s current health and its potential to grow. The growth investor looks at the industry where the stock belongs.
The company should sport consistently strong earnings. Its revenue should show signs that it can deliver strong growth expectations.
Considering the Management
The growth investor also considers the company’s management. For a company, achieving growth is one of the biggest challenges.
So, a great management team should be driving the company towards that goal. You must watch how the team performs and the things it does to achieve growth.
Momentum Stock Investing
Momentum investors, put simply, are those that ride the wave of stock prices. These investors believe that the winning stocks will keep winning while the losing ones will keep losing.
As such, they search stocks with strong uptrend power to buy. They find stocks that are falling steeply to short sell them.
Momentum investors are known technical analysts, since they typically rely on data to trade. They look for patterns in the stock prices to guide their buying decisions.
Quick Reaction Time
Investors using the momentum investing strategy needs to know how to quickly switch their buy and sell positions. They can build up profits over months instead of years.
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