The significance of Investment strategies

Investment strategies help investors choose where and how to invest as per their expected return, risk appetite, corpus amount, long-term, short-term holdings, retirement age, choice of industry, etc. Investors can strategies their investment plans as per the objectives and goals they want to achieve.

  • Investors chose the holding period based on the value they want to create in their portfolio. If investors think that a company will develop in the coming years and the inherent value of a stock will go up, they will invest in such companies to build their corpus value. According to Joseph Scott Audia This is also known as growth investing. On the other hand, if investors think that a company will deliver good value in a year or two, they will go for short term holding. The holding period also depends upon the preference of investors. 
  • The passive strategy involves buying and holding stocks and not frequently dealing in them to avoid higher transaction costs. They think they cannot outperform the market due to its volatility; hence passive strategies tend to be less risky. On the other hand, active strategies entail frequent buying and selling. They believe they can outperform the market and can gain more returns than an average investor would.
  • Value investing strategy involves investing in the company by looking at its inherent value because such companies are undervalued by the stock market. The idea behind investing in such companies is that when the market goes for correction, it will correct the value for such undervalued companies, and the cost will then shoot up, leaving investors with high returns when they sell. 
  • Dividend Growth Investing strategy, the investor looks out for companies that consistently paid a dividend every year. Companies that have a track record of paying dividends constantly are stable and less volatile compared to other companies and aim to increase their dividend payout every year. The investors reinvest such dividends and benefit from compounding over the long term.
  • Indexing investment strategy allows investors to invest a small portion of stocks in a market index. 
  • Contrarian Investing strategy allows investors to buy stocks of companies at the time of the down market. This strategy focuses on purchasing at low and selling at high. The downtime in the stock market is usually at the time of wartime, recession, calamity, etc. However, investors should not just buy stocks of any company during downtime. They should look out for companies that have the capacity to build up value and have a branding that stops access to their competition.

Joseph Scott Audia says that it is very important to have an investment strategy. It will help you rule out poor portfolios and will augment the chances of success. He further added that one should always lookout for good opportunities and never invest at one go. Building a portfolio is like building a house brick by brick, money by money.