Now that we've touched on a few important questions to ask yourself we can get started with more details about the different stock investment strategies. Stock investment strategies can be split into two main methods: fundamental analysis and technical analysis.
Fundamental analysis: A method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
Fundamental Analysis is that the stock market can incorrectly price stocks, but eventually the correct price will be obtained through time. The focus is in finding these undervalued companies and purchase them. In turn, they sell the stock when the stock is fully-valued or even over-valued.
Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.
Technical analysis: A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
Technical Analysis rely on charts and indicators that revolve around price and time such as moving averages, volume and relative strength of stocks just to name a few. There are way too many stock indicators to name them all here.
Technical analysis maintains that all information is reflected already in the stock price, so fundamental analysis is a waste of time. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.
Each type of stock investment strategy analysis has it's advantages and disadvantages. There is no clear winner as to which method is the best. It boils down to your own belief more than the system. It's about what you feel is a valid reason to buy a stock. If you don't believe that a low PE ratio is a strong enough reason to buy a stock then you should not be using that type of system.
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Thursday, January 17, 2008
IMPORTANT QUESTIONS IN INVESTMENT STRATEGIES
The questions that will narrow down your stock investment strategy search.
Before anyone can start looking at the different stock investment strategies that are available you should first know the answers to a couple simple questions.1) How interested are you in becoming more active in stock investing?
If you are not interested in becoming more active in stock investing then a simpler, more hands off approach, would be recommended. One of the most simple and effective hands off methods of stock investing would be to invest in the S&P 500 Index and putting a set amount towards stock investing each month. On the other hand, if you want to actively manage your stock investing and pursue higher returns then there are many stock investment strategies that can be selected to best fit your interest level.
2) How much time do you have to manage your stock investments?
Certain stock investment strategies require more time than others. Good stock investment strategy shouldn't take more than a few hours per month to implement. If you subscribe to an stock investment service you can lower that time down because they do the most time consuming part of the process the up front research. You can find a good stock investment strategy that can accomplish your goals and within your time that you can devote to managing your stock investments is the key.
3) Are you investing for income or for growth in stock value?
In general, you can classify stocks as income stocks or growth stocks. Income stocks produce a dividend during a specific time period such as every quarter, which provides income on a consistent basis. Growth stocks might produce a dividend, but are mainly purchased for growth in stock price.
4) Are you going to invest in individual stocks or some type of fund?
Selecting individual stocks will take a more time than just selecting a mutual fund or an index, but your efforts can be rewarded with greater returns. When you purchase a mutual fund or an index you are purchasing a large baskets of stocks that have been pre-selected for you. It does make it easier to diversify, but there is a downside to this theory. There might be stocks that are going through a down period, which will reduce your overall return.
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Wednesday, January 16, 2008
STRATEGIES FOR INVESTMENT IN STOCK
Investing in stock investment without a strategy is like searching for a treasure without a map. The correct stock investment strategy should not only define your investment methods, but will allow you to achieve your financial goals within your specified timeframe.
Four factors that determine your stock investment strategy .
To determine your stock investment strategy you first will need to know the following:
The amount of time that is available to achieve any goal is very important. Simply put if you don't have enough time to achieve your goal based on your current return then you will need to adjust your return, decrease your goal or make your timeframe longer. Having a shorter timeframe can put you into a different stock investment strategy than what you were initially thinking.
Certain goals can be very aggressive for a specific timeframe and that can lead to your risk level being higher than what you would like, but have to have in order to achieve those goals. There is a correlation to risk vs reward in investing and making sure that the higher risk can result in a reward high enough to justify a temporary setback with a losing stock investment.
The return level that is needed to achieve your goals based on your timeframe might not always be what your expecting. If your timeframe is shorter than what you would like to achieve your goal then your returns will have to compensate for the shortcoming. This can sometimes result is a higher risk level than one might be used to.
(Source)
Four factors that determine your stock investment strategy .
To determine your stock investment strategy you first will need to know the following:
- Goals - The total amount of money you will need to accomplish your goals.
- Timeframe - The length of time until you need to achieve your goals.
- Risk level - How much risk you are willing to take to achieve your goals.
- Return level - What returns you are you expecting to achieve on your investments.
The amount of time that is available to achieve any goal is very important. Simply put if you don't have enough time to achieve your goal based on your current return then you will need to adjust your return, decrease your goal or make your timeframe longer. Having a shorter timeframe can put you into a different stock investment strategy than what you were initially thinking.
Certain goals can be very aggressive for a specific timeframe and that can lead to your risk level being higher than what you would like, but have to have in order to achieve those goals. There is a correlation to risk vs reward in investing and making sure that the higher risk can result in a reward high enough to justify a temporary setback with a losing stock investment.
The return level that is needed to achieve your goals based on your timeframe might not always be what your expecting. If your timeframe is shorter than what you would like to achieve your goal then your returns will have to compensate for the shortcoming. This can sometimes result is a higher risk level than one might be used to.
(Source)
RULES - HOW TO SAVE MONEY TO INVEST
A great guide on saving money to invest is book called The Richest Man in Babylon. This book offers invaluable advise on how to save and invest money. This isn't a get rich quick scheme, but sound principles on how to gain wealth systematically starting with a foundation of saving money.
Rule 1: Save 10% of your income.
Spending 90% of what you earn and invest the other 10% is an incredibly powerful principle of wealth. Unfortunately, this is one of those principles that is easy to read about yet can be somewhat difficult to do. It's takes desire and diligence on your part to get to this great goal of saving 10% and making it a habit for the rest of your life. You might find it easier to not hop straight into 10%, but start small and take gradual steps to 10%.
Rule 2: Control your expenses.
The key to saving 10% of your income is creating a budget that keeps your expenses within the 90% of your total income.
Rule 3: Invest the money you saved.
All of the money that you saved, which hopefully is 10% of your income, should be invested.
Rule 4: Don't invest in risky investments.
Don't invest in get rich quick schemes or investments that extremely risky. It's best to stick with investments that make sense to you. There is a Theory in the things of investment ; "High Risk High Return and Low Risk Low Return". It's depend on your risk style, Risk Taker or Risk Avoider.
Rule 5: Own your own home.
Owning your own home rather than renting is a good wealth building investment.
Rule 6: Invest for your future.
Invest with your financial goals in mind such as children's college, new home, any large purchases, retirement, etc.
Rule 7: Increase your ability to earn money.
Never stop improving yourself in areas that can benefit you financially. Taking classes or reading up on latest trends to improve your work skills is essential. Never settle for less than what you want in life and continue improving yourself in the areas that can help you increase your ability to earn money in the future.
These seven important rules are not just a plan on saving money to invest, but a systematic way to increase your wealth year after year.
Rule 1: Save 10% of your income.
Spending 90% of what you earn and invest the other 10% is an incredibly powerful principle of wealth. Unfortunately, this is one of those principles that is easy to read about yet can be somewhat difficult to do. It's takes desire and diligence on your part to get to this great goal of saving 10% and making it a habit for the rest of your life. You might find it easier to not hop straight into 10%, but start small and take gradual steps to 10%.
Rule 2: Control your expenses.
The key to saving 10% of your income is creating a budget that keeps your expenses within the 90% of your total income.
Rule 3: Invest the money you saved.
All of the money that you saved, which hopefully is 10% of your income, should be invested.
Rule 4: Don't invest in risky investments.
Don't invest in get rich quick schemes or investments that extremely risky. It's best to stick with investments that make sense to you. There is a Theory in the things of investment ; "High Risk High Return and Low Risk Low Return". It's depend on your risk style, Risk Taker or Risk Avoider.
Rule 5: Own your own home.
Owning your own home rather than renting is a good wealth building investment.
Rule 6: Invest for your future.
Invest with your financial goals in mind such as children's college, new home, any large purchases, retirement, etc.
Rule 7: Increase your ability to earn money.
Never stop improving yourself in areas that can benefit you financially. Taking classes or reading up on latest trends to improve your work skills is essential. Never settle for less than what you want in life and continue improving yourself in the areas that can help you increase your ability to earn money in the future.
These seven important rules are not just a plan on saving money to invest, but a systematic way to increase your wealth year after year.
THE REASONS - WHY INVEST YOUR MONEY?
Why you invest your money? A simple question, but your reasons why can vary from paying for college, financial security, starting a family, buying a home, large future expense, changing jobs, building wealth, or retirement. Whatever your financial goals are there are two really great reasons why you should start investing your hard-earned money as soon as possible.
What you have to do if you start investing and want to retire at 65 with one million dollars? Let's run through some examples by saying you started investing at some different timeframe's in your life 25, 35, 45 and 55. Along with the starting age the average yearly return is another important variable. The different yearly returns that we were able to get an 8%, 10% or 12% return on your investments per year.
I think you don't like idle money, if you have a little freedom of your financial (money). Increase your wealth by the investment that possible to create cash inflow. Do not invest your money in bad business sector which result negative cash inflows.
Reason #1 -
The cost of products and services such as housing, education, retirement, transportation and medical keeps increasing.
Reason #2 -
Time can be your best friend or your worst enemy.
What you have to do if you start investing and want to retire at 65 with one million dollars? Let's run through some examples by saying you started investing at some different timeframe's in your life 25, 35, 45 and 55. Along with the starting age the average yearly return is another important variable. The different yearly returns that we were able to get an 8%, 10% or 12% return on your investments per year.
Reason #3 -
Your wealth not only be measured by equities, but depend on your ability to generate positive cash inflows.
Your wealth not only be measured by equities, but depend on your ability to generate positive cash inflows.
I think you don't like idle money, if you have a little freedom of your financial (money). Increase your wealth by the investment that possible to create cash inflow. Do not invest your money in bad business sector which result negative cash inflows.
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