YOUR INVESTING TECHNIQUE: YAY OR NAY?
Is your investing technique relevant or out of style?
A trader’s investment style depends on numerous factors, which boils down to diversification. In other words, maximizing profits and minimizing losses using different techniques. Investors can use various methods. But, for discussion purposes, we will focus on the most common investing strategies.
The strategy focuses on the total value of a company (in terms of outstanding shares), which is computed by multiplying the outstanding shares by the current market price per share. There are three types of stocks based on market cap: small-, medium-, and large-cap. One cannot gauge a company’s overall performance and value by gauging its market cap alone.
Momentum investing seeks to cash in on prevailing trends in the market. The rationale is investments that have gained traction for a long time are likely to continue in that path. A trader needs to take a long position in an asset which has exhibited an upward trend. It is imperative to determine the trends that will remain or falter.
Those who use this approach employs mathematical and statistical modeling. Equipped with measurement and research, it aims to ditch all emotions in the trading process and use computers to check data or reports to find potential investments. Methodologies are boundless. Computers have limitations, though.
Top-Down and Bottom-Up
In essence, top-down method requires looking at global economic and financial events on a grand scale. An investor then narrows down the sectors he wants to monitor and its corresponding stocks. Conversely, bottom-up strategy primarily concentrates on stocks. Disregarding current market conditors, traders who use this believe good firms and its equities will prosper.
Value and Growth
Choosing stocks based on value entails purchasing shares which are considered as less costly. Picking stocks according to growth involves buying shares that are expected to grow faster than its rivals in the market. By combining several styles and using those simultaneously, investors can experience the best of both worlds.