6 Stock Investing Strategies

Investing in shares is one of the most popular investment options in the stock market for participants with any amount of capital and experience. Novice investors are often attracted promotional materials that talk about low risks and high returns. An additional incentive is the possibility of receiving dividends, which creates the effect increased yield of securities. For those who expect to make a profit on shares it should be understood that to achieve success with a one-time selection of assets and a non-systematic approach to portfolio management is impossible. To truly realize your investment goals, it is imperative to use a proven strategy.

Types of strategies for investing in stocks

Investing in shares allows you to solve any investment problem. Because investors' goals are very diverse, there are also many strategies for trading these assets. To several, they organize information and make it easier for bidders to choose, they are accepted classified according to several criteria:

• Investment period, divided into short-, medium- and long-term.
  * According to the desired profitability and acceptable level of risk. According to this classification, aggressive strategies are aimed at obtaining returns of more than 50% per annum at high (often approaching 90-100%) risks. Moderate strategies involve more adequate goals in terms of profitability at the level of 20-45% and a limited level of risks due to investments in reliable assets. Conservative strategies are suitable for investors, focusing on a return of 10-
  20% per annual and virtually risk-free investment.
  * Control method. On this basis, strategies for independent trading are distinguished and trust management. The former can generate more income by reducing costs and a wider selection of investment instruments, but require time and having a certain level of knowledge and/or experience. The latter are more balanced selection of assets to obtain a high probability of a positive result, while reducing profitability due to additional commissions.
  * Investor activities. Strategies for passive bidders involve one-time
  portfolio formation and periodic management of its structure (rebalancing) in
  further. In the case of strategies for active investors, the structure of the asset basket may
  be subject to significant adjustments during the investment period. At the same time, operations with
  papers are carried out much more often and, as a rule, are of an irregular nature, but are
  reaction to changes in market conditions or other factors.

In general, all stock trading strategies, regardless of their affiliation with any
The group must decide 2 main questions:

1. Selecting assets to buy/sell.
   2. Principles of portfolio management over the entire investment horizon.

Real Strategies for Investing in Stocks

It is believed that investing in shares is one of the easiest options for working in financial
markets, which also brings solid profitability. However, among the strategies of such
There are investments that are both absolutely simple and those that require some knowledge and skills.
Buy and Hold
The Buy and Hold strategy is considered to be the simplest, and its effective application
accessible even to stock market beginners. Indeed, the name speaks about the principle of its
work - the investor buys shares and holds them throughout the entire investment period.

It is based on three main postulates that have been working in the stock market for dozens of years.
years:

1. In the long term, the market is growing. This is confirmed by the price charts of the main
indexes. Even after the deepest crises, for example, the Great Depression, the dot-com crash,
mortgage crisis, the market always recovered and reached new highs.
2. An investor who actively trades always loses to the market. This is not related to stock exchange
commissions and taxes, and with the very principle of trading - to receive signals for opening and closing
a trader can only trade positions based on changes in rates. Which means he's not getting enough
profit due to the delay from the optimal moments of entry and exit. In this case, the one who
simply follows the market, holding securities, and remains a winner.
3. It is impossible to lose everything in a wide market. Indeed, some assets can bring
significant losses or even depreciate completely; during crises, the
the market as a whole. However, the entire market cannot fall to zero, which means that after the investor’s crisis
new highs are expected (see point 1).
Important! These provisions show that the main content of the strategy is to retain purchased
papers, and not the accuracy of their selection. Although, with the right approach to portfolio formation, you can
significantly increase profitability.

The strategy has always been advocated by Warren Buffett, who states that the optimal
The holding period for shares is infinity. He also gives some advice on choosing issuers for
Buy and Hold implementations:

* presence of a unique product or technology that gives a competitive advantage 

;
* own ecosystem, actively working to attract users and their loyalty;
* cost advantage in production, due to which significantly reduced
costs;
* opportunities to scale both the business and the client audience.
Naturally, you should carefully study the company's business and determine its prospects. More
one important condition that almost all adherents of the strategy adhere to is
regular payment of dividends.

Money-cost averaging
This strategy is also simple, but is mainly suitable for investors with free
capital or making regular additions. Its essence is buying shares outside
depending on the market situation, with a given frequency or at a certain
changes in quotes. As a result, the investor receives a package of securities at an average price.
Due to this, the package holder receives increased profitability.

The strategy works especially well when markets are declining, in the area of local minimums. She
allows you to make a purchase at a price close to the best and enter the market without temporary
lag. The main disadvantage of this approach is the need to withstand drawdown when
unfavorable development of events, and its duration can be quite long.

As with Buy and Hold, the strategy is also easy to implement and focuses attention
not on the shares themselves, but on the technologies for entering the market. At the same time, if you choose valuable
securities with high growth potential, yield will increase significantly.

Dividend strategy
The strategy of investing in stocks with the expectation of receiving dividends also applies to
the simplest investment options in the stock market. According to it, the portfolio includes
only securities of issuers that consistently pay shareholders a portion of their profits.

The advantages of this strategy are:

* a stable flow of income that can not only be received, but also reinvested;
* simplicity of asset selection - the investor focuses not on growth prospects, but on dividend yield
history;
* when reinvesting income - accelerating capital growth due to compound interest.
However, it should be remembered that the payment of dividends, even if it is enshrined in the policy
company is not an obligation, but a right. Therefore, the risk of the issuer refusing to pay always exists.
Another issue to pay attention to is the size of dividends and reliability
companies. Often there are options when third-tier issuers with far from
excellent performance and high dividend payouts to generate interest
investors and attracting capital.
On a note! Although dividends are a seasonal phenomenon, i.e. paid by companies on certain
terms, with careful selection of shares, it is possible to implement the option with dividend shares
the well-known “Wheel” strategy, which multiplies the accumulation of compound interest.

Value investing
Value investing is one of the most effective, but quite complex strategies
for the stock market. Its main idea was succinctly formulated by Warren Buffett, who said that
The optimal choice for an investor is to buy good shares at a great price. This approach
implies the selection of assets whose price is below their real value.

Value investing typically does not focus on a specific market situation,
trends, etc. This is due to the fact that undervalued assets already have growth potential -
at least to their real value, while for the growth of quotes of other assets
an additional powerful driver is needed.

The investor's task in this strategy is to determine, using cost testing methods,
promising stocks to buy. Such securities include shares:
* with a below-average P/E multiple, a P/B of less than 1.5 and an equity-to-debt ratio
issuer more than 2;
* with a cost of no more than 70% of the estimated value, which is determined by total or net (if
using the theory of NCAV investment) the value of the company’s assets;
* if the issuer has been in existence for at least 5 years and there is a positive trend in the company’s profitability
during this period and in the future;
* the decrease in value is due solely to market processes or
fundamental economic factors and is not associated with a loss of profitability of the company.

Investing in "heavyweights"
The strategy involves the purchase of securities of issuers with the maximum market
capitalization. The simplest strategy is based on statistical data that shows:

* during a period of stable economy, it is these companies that determine the growth of the index, which allows
significantly reduce the investor's loss to the broad market;
* at the stages of recession and crisis development they demonstrate maximum stability,
significantly reducing losses for security holders.
Investing using Greenblatt's "magic formula"
Greenblatt's "magic formula" is one value investing option, but
differs in the method of selecting stocks to purchase. The assessment is based on two indicators
– return on capital (ROC) and profitability. In general, the process of selecting companies 

as follows:

1. Return on equity and profitability indicators for companies are calculated.
2. Companies are ranked in descending order of indicators (2 separate lists are compiled).
3. The company with maximum profitability receives 1 point, for each subsequent score
increases. The companies in the profitability list receive a similar rating.
4. The scores for each company are summed up. 25-30 shares of issuers with
the lowest total indicators.
Important! Financial sector companies and issuers with small and medium-sized businesses are not taken into consideration.
capitalization. Representatives of the insurance business and utility companies.

Portfolio restructuring is carried out annually.

All of the strategies mentioned allow you to get relatively high returns with small
risk levels and are mainly considered moderate and conservative.