Developing An Investment Strategy

There are many different approaches to investing in stocks. Some of the main investment strategies that are commonly pursued by stock market investors include:

Value investing

This strategy involves investing in companies that are trading at a discount to their ‘intrinsic’, or true stock value.

The idea is that if a stock is trading below its true value, it’s undervalued, and, therefore, may be worth buying. However, if a stock is trading above its true value, it’s overvalued, and, therefore, may be worth selling or avoiding.

Growth investing

This strategy involves investing in companies that are expected to grow at a fast pace in the future.

Growth stocks can offer high potential returns, however, they can be volatile, which means that they can be riskier.

Quality investing

This strategy involves investing in companies that have financial strength and are highly profitable.

High-quality stocks tend to be resilient and can offer protection during market downturns.

Small-cap investing

This strategy involves investing in small companies that have stock market capitalisations (the combined value of a company’s total shares) of $2 billion or less.

Smaller companies tend to produce higher returns than larger, more-established companies over time, however, they are generally more volatile.

Dividend (income) investing

This strategy involves investing in companies that pay consistent dividends to their investors.

Dividend investing is popular among retirees and those looking to generate passive income.

Socially responsible investing (SRI)

This strategy, which has become more popular in recent years, involves investing in companies that meet environment, social and governance (ESG) criteria.

SRI investors often avoid stocks in sectors such as oil, tobacco, and defence.

Note that these approaches are not mutually exclusive. Often, investors combine a number of strategies.

Which strategy is best for you will depend on a number of factors including your investment goals and objectives, financial situation, time horizon, and risk tolerance.