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What type of stock market strategy do you follow?

by , 03 April 2014

When it comes down to investing, there are essentially three different broad types of strategies that investors follow. These three strategies are income investing, value investing and growth investing. Let's take a closer look at these three strategies…

Your investing strategy will depend on your money making focus

When it comes to investing in shares, you can make money in two ways, Phil Oakley in Money Week explains. Either through dividends you receive and/or through capital gains (buying a share and selling it at a higher price).

Your focus on how to make money determines your investing strategy.

Let’s see what’s involved with the three main stock market strategies…

Why would a tiny South African stock in the tech sector to rise 515.85% in 40 months?

I don't know. And to be quite candid, I don't care!

The only thing I care about… the only thing worth knowing… is whether a certain stock is going to rise – and when.

Here, let me show you what I mean…

Strategy 1: Income investing

This is the buy and hold approach. You focus on buying shares for their dividends. The dividend payment is the most important thing.

To follow this strategy you look for companies that pay out high, sustainable dividends. Capital growth isn’t important.

Strategy 2: Value investing

This is a contrarian approach. Investment great, Warren Buffett, is a follower of this strategy.

The idea behind this strategy is buying shares that the rest of the market hates. This means buying in market dips and when shares are out of favour.

You do this by having a thorough understanding of a company’s fundamentals and trying to understand the full value of a company.

Strategy 3: Growth investing

This type of strategy ignores dividends and focuses on capital growth. The idea is to buy companies that will grow quickly, taking their share prices with them.

These types of companies won’t pay dividends as they’ll focus on ploughing money back into the business. To buy successful growth shares, you need to have faith in a company’s business model and products.

So there you have it, the three different stock market strategies you can follow.

What type of stock market strategy do you follow?
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