4 investment strategies every stock investor should consider

By Sia Hasan

Special to the Financial Independence Hub

Portfolio managers and analysts believe that no one investment strategy outweighs the rest. Instead, every game plan has its unique strengths and weaknesses. As such, it’s up to investors to choose the tactic that best works for them. It’s worth taking time to learn to develop strategies if you are considering investing in bonds or stocks. Some of the stock and bond investment strategies include quantitative, algorithmic trading, value investing, growth strategy, GARP investing, and collar options strategy.

Quantitative, Algorithmic Trading

Quantitative, algorithmic Trading involves selection of an investment based on mathematical analysis. In fact, investors don’t need to consider other factors such as how a business operates. All they need is to analyze different variables that correlate with each other to create an algorithm that can help predict how stock or bond prices will change over time. Quantitative, algorithmic trading is one of the newest investment strategies that have become popular in the past few years. It allows investors to engage in different investment styles and come up with a thesis, variables and set of data that they can use to identify and exploit market inefficiencies. It’s up to the investors to develop a model, test it with historical data, and implement it to see if it works. Algorithmic trading is ideal for investors with some mathematical and computer programming background.

Value Investing

Value investing is a strategy where an investor buys stocks that are grossly undervalued. Buying stocks that trade for less value than their net assets and cash profits allows the investor to limit the amount of money he or she could lose on an investment. The strategy is ideal for investors who believe that the market overreacts to emerging trends, resulting in a price decline that doesn’t correspond with an investor’s long-term fundamentals. The stock price could decline beyond its fair value when a market overreacts to bad news. As such, an investor can take advantage and buy stock, and wait for its value to return to its optimal level.

Growth Investing

Growth investing is a more aggressive investment strategy that focuses on capital appreciation. It involves investment in stocks or bonds that exhibit signs of growth even if their current share price seems high. Investors are anticipating that stocks and bonds will grow in value and offset the premium they will pay for the investment. However, this is an aggressive investment approach that investors regard as both highly rewarding and highly risky. Investors have to be confident about the growth and competitive strength of a company to justify that its share value will grow in the future. Growth investing strategy is ideal for futurists who are confident that stocks or bonds will increase in value over time.

Growth at Reasonable Price Investing (GARP)

GARP (Growth at a Reasonable Price) is a hybrid of growth and value investing strategies. However, analysts have often stated that value and growth-based investment strategies are joined at the hip. In fact, there is little difference between growth and value-based investment strategies. The growth of a company will always impact its fair value. It is far better to buy highly valued shares at a fair price than to buy undervalued shares at a lower price. GARP strategies enable investors to identify stocks and bonds that are priced reasonably. As such, they can benefit from the stock’s growth potential as well as enjoy protection against price deviation.

It’s important to note there is no one investment strategy that is best for everyone. What matters is whether the investment tactic is a good fit for your company or not. However, nothing is worse than being inconsistent with each of your investment strategies. You can hardly find the source of error that could be increasing your costs if you invest in different philosophy each time. However, it is vital to minimize your trading costs irrespective of the investment strategy you adopt.

Sia Hasan is a tech entrepreneur by day, and a freelance writer by night. Her passion lies in business technology, efficient and sleek programming, and customer relationship management. When she doesn’t have her nose pressed against her computer screen, you can find her spending time with the loves of her life, her two dogs, Pixel and Vector.

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