In the past few weeks I have come across several
investment strategies, hence I feel this would be the best time to put it on
paper (blog) so that this information can be accessed later as well. It is
amazing to realize that, as in life there is no one way to salvation, investing
also follows a similar pattern. There are so many investors following diverse
strategies and making tonnes of money; the most pertinent reason for this is
the discipline with which they stick to their strategies. Ofcourse they did not
strike gold in their first attempt but have refined their strategies over and
over, by incorporating experiences from their failures. I feel that they hold
valid even in this volatile and continuously evolving environment, the only
caveat being that one needs to identify which strategy best suits their
temperament and stick to it through thick and thin. Have listed below the
ones which have appealed to me….
1. Index Investing: Index investing is a
fairly simple and straight forward strategy, especially for people who do not
have the bandwidth to invest time and energy into researching stocks. It
involves either buying an Index Mutual Fund or buying shares that form part of
a particular index, for example buying all the 50 stocks in the same proportion
as in India’s NIFTY Index, and whenever the National Stock Exchange (NSE)
changes the weight of a stock or replaces a stock, then the investor needs to
do the same. In short it means replicating the NIFTY.
2. Value Investing: Value investor is one who does
detailed analysis of historical financial data and buys a stock only if it
offers value i.e. it is available at cheap rates as compared to peers or
historical averages or book value. Ben Graham was the proponent of value
investing; he has captured the essence of Value Investing in his book Security
Analysis (written in 1930s).
3. Growth Investing: Growth investing is
completely opposite of value investing, as per this strategy one analyses the
industry in detail to ascertain the growth potential of a company, growth
stocks are usually in sunrise industries like IT, internet, robotics etc.
However, they are available at expensive valuations and also are susceptible to
failures, hence it is very important to study the industry in detail. Warren
Buffet follows a mix of Value and Growth investment philosophy.
4. Contrarian Investing: Contrarian investor is
one who basically invests in stocks which have gone out of favor, primarily due
to short term head-winds or downward pressure on earnings. So contrarian
investor is one who would invest in Infra or PSU Banking stocks in the current
economic environment (November 2013). This strategy is primarily used for long
term investing.
5. Momentum Investing: As the name suggests,
momentum investing basically involves taking long/short positions purely based
on the daily/weekly/monthly price trends. So it’s a trading strategy for short
term investors.
6. High Frequency Trading: This trading strategy
basically involves developing and applying complex quant based strategies. These
strategies would involve taking simultaneous positions in various asset classes
across International Markets.
7. Alternate Assets: Alternate assets would
include investments in Commodities, Real Estate, Hedge Funds and Private Equity. Each of
them has its own nuances, which affect their prices.
8. Fixed Income: Fixed income basically
involves investing in Debt markets i.e. government bonds & Tbills,
corporate bonds and asset backed securities. The duration of investments could
range from few days to 30 years.
