By Vishweshwar HS, www.showmytrade.com
Stock market investing is an advantageous, excellent second source of income additional to our job or profession. It is exceptionally essential to know investment basics, process, duration, or How to Invest in excellent profitable opportunities and minimize the loss. Various styles of investing will help us to understand the subject in more detail. One can choose the type of investment that works!.
In the growth investing approach to fundamental analysis, the investor tries to find such companies, which are expected to witness very high growth in business performance in the future. Once the investor has chosen such a company, buy its shares. The investor expects to benefit from future high growth of the business of the company.
An investor, who follows the growth investing approach of fundamental analysis, would like to study a company like any other business. The investor would focus on a company’s product, target market, distribution channel, customers, management, financials, etc. The investor wants to know the strength and sustainability of the business of a company in the long term. The aim here is to find a company that is going to increase its earnings, market share, pricing power, differentiated product, or service in the future. Such a company is preferred for large investors, which ultimately results in re-rating. Such a company price to earnings (PE) ratio will result in multi-times of their earning in valuation.
In Value investing, the approach of fundamental analysis is to find the fair value of the share of a company. Analyzing the various business and financial factors, and calculating the fair value of such share, also compares it with the current market price (CMP) of such stock. If the investor figures out the current stock price of the company are lower than the fair value of its stock and buy the shares of such a value company. The investor expects to good return from the rising price of such stock. When the market discovers the discount in the stock value and increases the stock price to its fair value.
The value investing approach would focus on finding the fair value of the company. Investors focus on the assets quality and earning potential of the companies. Then tries to find whose stocks are priced at a discount to the fair value. The deeper the discount can find, the better it is!
Index Funds are a source of investment for investors who would like to invest for the long term but don’t want to take more risk. The index funds are relatively low is volatile compared to other products. Therefore index funds are an excellent choice.
In Index funds, investors proportionately match the index. In India, Nifty 50, investor match. Many mutual funds use the NSE index for promoting various mutual fund schemes.
Some of these funds are as follows:
Momentum investing is a style of investing stocks or securities which has high returns over the past 3-12 months and selling those that have had poor returns over the same period. Here investor tries to capture momentum usually for the short-term.
Some Investors also identify momentum in any asset class and will invest till momentum last in any country/index etc.
In this style of investing, the fund manager generates above the market or benchmark index income.
Yield is forward-looking. It measures income, such as interest and dividends. The yield investment style ignores the capital gains. The yield focused for a specific period, annualized returns such as interest or dividends.
In this style, the investment is made to suit the specific/exact risk and reward parameters of the investor using sophisticated investment tools and financial products.
Structured products are pre-packaged investments that typically include assets or derivative products. It generally tracks an index or basket of securities and is designed to facilitate highly customized risk-return objectives.
An alternative investment is also a financial asset, but that does not fall in convention investments such as equity, interest, and other cash products.
Some of the alternative investment examples are Private Equity, Venture capital, hedge funds, real property. Alternative investments tend to be somewhat illiquid.
An alternative investment also invest in non-conventional products such as weather, art, wines, etc.,
The investor has multiple choice of investment vehicles based on their risk to reward, duration of investment, understanding of the products, etc. Investors can diversify their investments into various styles of investing.
Kindly share your comments on the Investment styles below. Any information regarding the Investment style will update in the next edition.
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