Stock Market Strategies
Ways and Tips to play
Successful investors use different stock market investing styles to win money in their trades in the stock market. Usually the successful investors pick an investing style that fits their personality. The long term investors for instance would usually use value investing since they want to hold for 1 year or more. Short term investors on the other hand would pick technical investing since they want to go for a short term momentum plays. They would only take their profit once they achieved their target price. Here are some of the different styles that stock market players use in their investing activities.
Value investors use fundamental analysis of the stocks they intend to buy. If their analysis show that the stock price of a company is below its intrinsic value or their perceived value based on the company’s fundamentals, then they would likely buy this stock and hold it until it reaches the desired target price. Value investors use methods like price to earnings ratio or price to book ratio to measure if the stock is undervalued or overvalued. If their analysis show that a company’s stock price is for example more than 10% undervalued, then it has a “margin of safety” if they decide to buy this company at its present price.
Value investing usually presents itself during times of bad news after the investors wildly sold down the stock shares of the company. This is a great opportunity for value investors to buy cheap stocks since it presents a bargain when they computed for their true worth or intrinsic value. Value investing is very popular because one of its famous disciple is Warren Buffet who is known for his smart business acumen and use of margin of safety. He learned this from his teacher Benjamin Graham who is regarded as the “Father of Value Investing.”
Growth investors would look for stocks that have a great potential for above average earnings gain. They would expect a stock price’s earnings per share to double or even triple its price in short time period like a year’s time. They also would want to see the return on equity gain 15% or more. Typically, new industries that offer new products like those in the technology businesses are considered to be main targets of growth investors. There are famous growth stocks advocates like Phil Fisher and Peter Lynch. T. Rowe Price is regarded as the “Father of Growth Investing.”
Technical investors use technical analysis in the selection of their stocks. Technical analysis would use charts to see the map of the historical closing price of the company’s stock. This is why technical investors are also called “chartists” because of their frequent use of charts as reference of their work. They are only interested in tracking the stock’s market price and direction. They set their buy and sell signals as well as their price targets where they will cash in on their profits. They also use charts to see the price where they would sell at a stop loss if they incurred too much losses in the stock price. They would also use supporting indicators like macd, volume, rsi, and different oscillators as supporting evidences in their choice of a stock.
Instead of buying shares in a single company, index investors would buy shares that replicate a portion of a large market segment for example the Dow Jones , S&P 500 or the Nasdaq 100. A good advantage of this kind of investing is the reduced risk and volatility instead of just investing on a single or a few stocks. This is the preferred strategy for defensive or conservative investors.