What Investment Strategy to Choose

Investing without limiting yourself to an investment strategy may cause huge losses. Of course, there is no 100% successful strategy that will bring you 50% yield and millions. The strategy should be developed according to one’s experience, knowledge, and character. Nevertheless, there’re couple of general strategy “templates” that can help to find the optimal direction for investing. So, there are 4 main strategies for investing: value investing, income investing and growth investing. I would like to comment on each of these strategies and to outline pros and cons.
Value investing strategy is a way of making money on buying shares of undervalued companies and reselling them later with the gain of the price. This strategy requires a lot of research to clearly understand why shares of the particular company are underestimated and patience because it might take some time for the price to grow. What pros do I see from this strategy? Well, obviously, this may become a huge deal if you pick the right company. For example, in 2016 the American subsidiary of Deutsche Bank failed the stress test, what caused the huge drop in DB’s share price. You know what happened then? The stock price steadily started to increase and in a couple of months, it cost 40% more than in the bottom point. This is one of the most recent and obvious examples, but if you dig deeper, you may find many and many more cases. The dark side of value investing is, of course, risk. The stock market is unpredictable, some random event may cause a huge loss.
Growth investment strategy has the same nature as the previous one but is characterized by higher risk. This strategy refers to investing in companies that have potential to grow or to the companies performing in emerging markets. The pros and cons are pretty the same as at the previous strategy, but they gain more strength: you can earn more, but these companies are in the group of higher risk that makes investing in them more unpredictable and hence, more nervous. When I analyze such companies (majorly from IT sphere) I always take a close look at the product, team, management and other facts that will allow me to make predictions about future share price.
Small-cap investments take it to the smaller scale. This strategy implies investing in companies with market capitalization of USD 300 mln to 2 bln. Usually, these stocks stay unnoticed by most of investors, so they are traded at relatively low prices. This is the next extent of risk after the previous strategy: you usually can’t get much information about such a company. So, the disadvantages and advantages are multiplied again: you are in a huge risk zone, but if you guess right, your investments bring you great benefit. I wouldn’t recommend playing a lot with this strategy. The optimal case is when you know the company closely, possess some insider information or another valuable information about company’s activities.
Income investing strategy is investing in something that can bring you stable income in future. Examples: dividend-paying stocks and bonds. The mechanism is simple: you get the fixed amount every year not suffering any risk. This is the main advantage of this strategy: you don’t have to care about the share price fluctuations, you will get your money anyway. The disadvantage of this is that the yield is less than it could be in the first three cases. As for me, this is a good variant for people who want to preserve their capital without huge stress.
I would say that focusing on one strategy would be the best option, but still in some cases combining different strategy types may be more beneficial. I would split my investment portfolio like this: 50% goes to the first group, 30% to second, 15% to the third and 5% to the fourth.
Choose your investment strategy wisely and always take into consideration pros and cons! And of course reed more about investment on my blog.

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