Introduction
An investment strategy is defined as the approach taken by an individual when choosing the type of investment to venture into. Various investment strategies show the different aims investors have when making investment decisions. In some situations, the term investment strategy is used when referring to investment choices. There are different stock investment strategies applicable during stock stimulation that makes the process of choosing the most appropriate stock investment strategy a difficult undertaking. Everybody has got his or her way of investing but there are investment methods that are more suitable than others.
Types of Investment Strategies
One of the common types of investment strategies is growth and value investing. This is important for companies whose valuation is low about their current profits and incoming money. Companies with a strong capital base can pay high dividend rates hence investors who want to earn income immediately are attracted to value investing (Hagstrom 1997).
Another type of investment strategy is known as momentum investing. This involves buying stocks whose prices are increasing and selling stocks whose prices are decreasing. However, this is not one of the best investment strategies since investors may be tempted to buy stocks whose prices are very high. For this strategy to be useful, it can be used together with other investment strategies. This helps in making decisions concerning the most appropriate period to buy or sell stocks (Moneyterms 2005).
Contrarian investing operates in a manner that is the opposite of how momentum investing operates. Contrarian investors buy stocks when the markets are not doing well and sell them when the markets are doing fine. They buy stocks that are not valued and sell the ones that are highly valued in the market. A contrarian investor also makes some analysis because, at times when other investors are running for growth stocks, there might be enormous profits in value stocks (Ziemba and Ziemba 2007).
The investment strategies that were employed were successful because most of them resulted in profits. The success or failure of an investment strategy depends on some factors. To begin with, it depends on whether the stocks that an investor decides to buy have been performing well in the market. If the stocks have been performing well in the market before making the investment decision, chances are that the investment strategy will be a success. If the stocks have been performing poorly in the market, there is a high probability that the investment strategy will fail (Economywatch 2010).
Another factor that may determine the success or failure of an investment strategy is global market issues. The global market determines the price of stocks and in periods when there is a recession, this affects the prices of stocks adversely. When an investor chooses an investment strategy during periods of economic recession, there is a high possibility of the investment strategy being unsuccessful (Estrin and Meyer 2004).
Another local factor that may determine the success or failure of an investment strategy is the level of competition in the market. It is advisable to choose an investment strategy that is not a favorite for many investors. This reduces the competition in a particular field hence creating good chances of success. For instance, an investor should first analyze other investment strategies being used by other investors before deciding on the investment strategy to make. The best decision is to use a strategy that is not employed by many investors to reduce the level of competition. Where there is little competition, chances of success are high. On the other hand, when the competition is stiff chances of the investment strategy succeeding are low.
Conclusion
Investment is an important aspect in the world of business that should be undertaken carefully. Investors need to make informed choices when investing to ensure that the investment strategies they choose are successful. To be sure of investment success, investors should make use of the different investment strategies that have been discussed in this paper. Considerations should also be made to choose a less competitive investment strategy.
Works Cited
Economy Watch. Investment Strategy, Guide to Investment Strategy. 2010.
Estrin, S and K Meyer. Investment strategies in emerging markets. New York: Edward Elgar Publishing, 2004. Print.
Hagstrom, R. The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor. Canada: John Wiley and Sons, 1997. Print.
Moneyterms. Investment strategy. 2005.
Ziemba, R and W Ziemba. Scenarios for Risk Management and Global Investment Strategies. England: Wiley and Sons, 2007. Print.