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Step 1
What is your approach to investing?
Do you try to identify the stocks that are a good value in that they are priced low now, but in the future, they will be worth much more?
Do you try to predict the future price of a stock its historical patterns?
Do you see yourself as the investor who can buy stocks and hold on to them? Do you aim for a portfolio of a large number of well-diversified stocks? -
Step 2
The type of strategy that you use will depend in on your view of stock prices.
1) Do you pretty much believe that a stock's price is pretty much an indicator of its value?
2) Do you believe that a stock price is up and down, without serious regard to its real value?. -
Step 3
If #1 directly above is you, you may not want stocks that are priced appreciably above or below their perceived value. You would probably apply your efforts toward a portfolio that provides returns closest to the market's return at a specified level of market risk. You would decide on what level of risk you are willing to bear and you would develop your portfolio along those lines.
Perhaps you see the market differently. Maybe you believe that the prices of some stocks can be priced significantly from their real value. You might then buy stocks well below or well above their real value. -
Step 4
Kinds of Investment Strategies-
These factors and your beliefs about investing all comprise the three basic kinds of investment strategies: 1.growth investing, 2. income investing, and 3. value investing.
# 1 Growth Investing-
This kind of investment strategy is all about trying to identify the companies that have a history of high growing earnings. If you are in a position and of a disposition to take on high levels of risk, this might be the strategy for you. Technology stocks in the decade of the 1990s fit this category. The growth company may start with little capital, but is based on a great idea. If the company can lure investors, the outcome can be very good for investors. There is the potential of high reward in a climate of high risk. -
Step 5
#2 Income Investing-
Do you see yourself as a bit more conservative than the qualities needed in growth investing? This approach is based on identifying companies, often well-established, larger companies that can be pretty much counted on to pay high dividends. This strategy protects the investor, in a manner of speaking, because the investor takes a conservative stance rather than exposing his portfolio to high risk investing. -
Step 6
#3 Value Investing -
Do you see yourself as an investor who is out to find the buried treasure? That is, are you wanting to uncover potentially valuable stocks that are hidden in the market? Do you look for a stock that has been overlooked and undervalued?
This sounds like an adventure, but it requires some technical analysis because it can be difficult to discern when a stock's price to earnings ratio is truly and indicator that the stocks that are currently at a low price will rise as the market sees the value of the company and that stock price will bid up to its destiny as a more valuable stock later on.
