Investors sometimes adopt certain specific strategies in order to maximise their profits. These strategies help the investors to increase their profit potential. Value investing, growth investing, momentum investing and drip investing are certain strategies.
Value investing uses debt to equity as well as the PE ratio to figure the company's current financial position and also predict the future to a certain extent. After a thorough analysis the investors then choose and buy stocks that are considered undervalued and hold on to them till they surpass their market value.
The growth investing strategy employs the method of finding companies that show promise of high future growth. The investors simply shortlist and buy stocks that are expected to rise potentially in the future.
Momentum investing is another strategy that involves buying and selling of stocks that have a good past record. It concentrates on finding simple solution to the complex problem of profit making through stock trade by investing on stocks that have been doing well consistently for some years.
Drip investing is a way of increasing profits from dividend stocks. You buy dividend stocks and reinvest them back in the company, provided the company has a policy for that. This practice proves to be a great investment as it helps investors to increase their returns over time.
One very common investing strategy is to buy shares with a view to incur long-term gains. Dynamics of share market makes all investors unsure about what is going to happen in the future. Long-term investing strategy protects your money from daily market upheavals assuring that you would gain in the long term. Another strong strategy is to identify the growth potential of a company. High earnings growth of a company makes a company attractive to investors. The facts considered are earnings per share of the company over the years, revenue growth of the company and the relationship between price or earnings ratio and the annual earnings growth as well. Investors also look for shares that can be sold at a price below the real value of the company.
Timing the market is another strategy that can be used successfully but many analysts are against investors trying to time the market. Timing of market should always be based on technical and fundamental analysis and never on intuitive feelings. It is almost impossible to predict the highest and lowest points of a market curve and the basic aim of market timing is to buy low and sell high. Moreover, a transaction at every rise and fall of the market will add on to the number of transactions and hence the commission to brokers will also increase thereby pulling down the profit percentage. So concentrating on long-term investing strategies is a better option than timing the market.
At the end, it should always be remembered that there is no hard and fast rule for picking the right stock option. But in any case, applying the right strategy and picking the correct stock is important as it increases the chances of accumulating personal wealth through share trade. The strategy should be chosen on the basis of the time one wants to devote to share trading, risk tolerance factors of the investor, the mental makeup of the investor and the amount he wants to put in. Fundamental analysis, qualitative analysis, value investing, growth investing, GARP investing, income investing, technical analysis---these are some of the terms that keep recurring while discussing about investing strategies but at the end it is all about taking informed calculative decisions with the aim to incur maximum profits out of share trading.
