I received the following question in the comments section of my last post:
'Are there different types of strategies?'
The simple answer is, yes. There are many different types of stock investing strategies. Each investor must come up with their own personal strategy or closely follow a classic investing strategy.
The main types of conservative investing strategies are index investing (efficient market hypothesis followers), buy and hold investors, income investors and value investors. There is not an index investor who is famous world wide for investing in major indexes or mutual funds. Buy and hold investors seek out high quality stocks and then hold on to them based on the fact that the stocks of high quality companies will out perform the overall market. Income investors look for stable stocks that pay dividends to the stock holder. These types of stocks are popular with retirees and they do historically well when the overall market is suffering. Value investors attempt to use fundamental analysis, (looking in depth at a companies finances), to find stocks that are on sale or under priced. Once they find stocks of good companies that are under priced they snap them up and wait for the rest of the overall market to realize the actual value of the stock. Famous Value investors include Warren Buffett and Benjamin Graham.
Investment strategies that include more risk are position trading, swing trading, and day trading. Traders make use of technical analysis, (the study of price charts), they look at charts for signs of where the market and the stock they are trading is going. Position trading is practiced by Jim Cramer. Position traders trade trends and use fundamental and technical analysis to judge when to by and sell their positions. Swing traders rely more on technical analysis and look to buy and sell stocks quicker then position traders. Channel trading is a type of swing trading. Day traders trade the market on a day to day basis sometimes making multiple trades each day. There are special tax benefits for people who qualify as day traders. This allows day traders to avoid paying short term capital gains taxes.
I personally think that investors should learn as much as possible about as many types of strategies as possible and then develop their own strategy that blends the best parts of the classic strategies into their own unique strategy. It is important to find out what strategy you feel the most comfortable with. Some investors have a higher tolerance for risk then others. Some investors like to dig deeply into company accounting while others like to rely more on news events and trends. No particular strategy is perfect or fool proof. If there was a perfect strategy all investors would have the same strategy!
Do you have more than one strategy or do u follow only one?
ReplyDeleteI am about to trade my first stock given the current market how nervous should I be?
ReplyDeleteWhat was your worst stock pick for 2011?
ReplyDeleteI mainly follow fundamental analysis. I blend some basic technical analysis in as well. 90% of the time I like to trade stocks that are trending upward. I think that fundamental analysis is the best way to be successful.
ReplyDeleteI am feeling less nervous about the market then I was a month ago. I think that if you hang in there the market will be up by the end of 2012 and you should be fine if you have the stock of a SOLID company with good earnings and growth. I personally would not buy into the market at the levels they are at now, I would wait for a pull back. Always buy on weakness!
I traded APC on 10/31/11 at $79.95 per share. The stock missed on its earnings and I sold it at 78.05 a day later. I made this trade because the experts felt that APC would beat earnings and I grew impatient and felt like I had to be in the market. Obviously that was a mistake and I learned from it. What I learned was 'experts' advice alone can't be trusted, I always need to do my own research before a trade or investment.
How do you think Obama being reelected will effect the market?
ReplyDeleteI do not see Obama being reelected as a plus for the market in general. He has shown that he is willing to raise taxes, get in the way of domestic oil and natural gas production, and he has not shown any urgency when it comes to getting U.S. debt under control. I hope that a new President would be for all of the above and do their best to move forward on each of those important issues.
ReplyDeleteRepublicans have shown a tendency to go to war during their past couple terms in office and this would also be bad for the market.
I think that the U.S. economy is turning the corner and will do well no matter who gets elected in 2012.
I will be voting for any major candidate that runs against Obama in 2012.