Choosing a Stock Investment Strategy for You

Over the last two decades, the average person’s interest and participation in stock market investing has skyrocketed. Perhaps people have more clearly seen the power in owning stock and having a vested interest in the success or failure of a company of their choosing. While this type of investing was once seen as a vehicle for the wealthy, decreasing brokerage fees and widely/ immediately available financial information via the Internet has increased stock market participation among all investors. For newer stock investors, it is important to become familiar with the different strategies of stock market investing and choose an approach that meets their financial objectives and tolerance for risk.

Fundamental v. Technical Analysis: These are seen as the two primary schools of thought in stock investing. The fundamental analyst concerns himself with financial statements, the strength of company management, competitive advantages for the company, industry factors, and other elements that provide indications of the company’s strength and position in the marketplace. In contrast, technical analysts evaluate stock investments based on the study of price history, trading volumes, and the chart patterns they present with the belief that past behavior will indicate future price direction.

Growth v. Value Investing: Growth investors look for stocks of companies whose earnings are expected to grow at rates that exceed the expectations for the industry or the market as a whole. Growth investors will employ this strategy even if valuation metrics, like the price/ earnings ratio, indicate that the stock is expensive. Value investors look for those companies that have (they believe temporarily and unfairly) fallen out of favor. Value investing is about determining a stock’s real or “intrinsic” value and making an investment when that value is considerably higher than the current share price.

Contrarian v. Momentum Investing: Contrarian investors is one who opposes the majority or “herd” opinion with regard to stock picking and seeks to profit through investments that differ from the consensus. A contrarian believes that the majority of investors overreacts to company news, good or bad, and seeks to exploit this. Momentum investors see things differently, believing that large gains or losses will be followed by a continuation of that pattern. Momentum investors will buy when a stock is seen as “hot” and may even short-sell a stock that is trending downward.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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