This article summarizes different investment strategies.
Knowing where to put your money.
There are many types of investors on the stock market and there are many financial instruments available on the market. We’ll try to profile and match each investor to the investment strategies that best fit their needs.
But first we’ll count the basic investment variables:
1. The duration of the investment ( long (pension), medium , short , daily )
2. The risk - this variable depends on other variables: psychological state, industry stability, company value, global economy
3. The diversification – this variable determines the portfolio fluctuation
The blue chip investment – the blue chip companies are the biggest companies in the market. These companies usually offer the investor stability. Many of the blue chip companies are well known organizations that prove to be a winninghorse over the years, and can be found in the leading indexes (Tel-Aviv-25, DAX-30, S&P500, etc.).
The blue chip investment counts as a solid investment with low risk and no major fluctuations, but keep in mind that many big companies don’t survive in the top of the list for many years.
The start-up investment – unlike the blue chip start-up investments are very risky. This type of investor searches for companies in the early stages of their life-cycle (new ideas, new products, new services, etc.), and hope that the company overcomes all the obstacles related to the early stages of a company’s life-cycle. Those companies must prove themselves, and most of the time don’t have much money and have no room for error in order to fulfill their vision. This type of investment is not for the faint of heart. These companies are very risky and most won’t survive at all. However, those that do will most likely be the most profitable.
Long vs. Short term
Some traders love to play with their money and dedicate most of the time to the stock market. Usually they are driven by the goal of high, fast profits, and pay less attention to the losing risks. The best way for the risk takers to use their knowledge and time is to invest their money over a short period of time, say a couple of hours or days, and use the market fluctuation to gain money. In order to do so, they need to find the general direction of the stock over the day, invest in the low points and sell during high tide. These short run investments are risky, and they take a lot of time and knowledge, and therefore are not fit for most of the population.
On the other hand, the long-term investments are less time consuming and more conventionally used by many firms and individuals. Almost everyone invest his or her money in one way or another, and the most common tool for the long-term investment is the pension. This tool invests most of its money on solid stocks and bonds. The long-term investment is based on the empirical knowledge that the market has a business cycle, but on the long run it will rise more or less surely, and that’s why the pension is a good tool to save money for retirement.
Unlike the other variables, the diversification of your stock portfolio is not questionable. You MUST have different stocks, and some have to be non-correlated. The trend of high diversification is simply because it’s not wise to put all eggs in one basket. Doing so exposes you to high dependence on one stock – if this stock goes down, you might lose all your money.
In my opinion, everyone can and needs to keep tabs on his investment, and hold a basic knowledge of the stock market and the economic world. This knowledge may help you save money or multiply your investment.
Another option is to let others invest your money for you, if you lack the time or motivation to do it yourself. We will discuss these tools on a follow-up article.
Omri Traub
The CEO Game.
VN:F [1.8.6_1065]
Rating: 9.0/10 (1 vote cast)
VN:F [1.8.6_1065]
Recent Comments