Hey Readers, Social Investor’s here and we welcome you all to another interesting lecture which is on How to Pick your Investing Strategies. Now, whenever I use the word strategy, many people actually get confused as to what is the exact difference between a goal and a strategy. So, in simple words, if you want to understand, let’s say this is my goal it’s like a manzil, that’s like my destination right, but what is a strategy?
What is an Investment Strategy?
Strategy is how I decide to reach this goal. So, strategy tells me how to move through all the hurdles in the most effective way to reach my goal. So, do we have a strategy only for investment purposes?
No, we can have a strategy in any walk of our life so for example, if I want to choose my career, for that, I have a strategy, kids may have a strategy to how to study and how to score more in exams, people can have a strategy to win different games right.
So, similarly, we can have a strategy for our investment purpose as well but, if I am talking about an investment strategy, is there any law behind it? No. It’s just a guide on how you can choose your investment strategy.
So, what can be the different parameters based on which I choose my strategy, there can be multiple parameters like what? It can be like my risk appetite, so depending on my risk appetite, my investment strategy will change right.
It can also depend on your goals, so, whether it’s a short-term goal, whether it’s a medium-term goal, depends on that, depends on all these points what my investment strategy can be. It can also depend on your term horizon, whether it’s a long-time horizon, short-term horizon, or what. So, there are multiple parameters in short based on which you will choose your investment strategy.
One more very important point is that your investment strategy can be different from my investment strategy. One more important point is that your investment strategies can depend on your goals, which means what?
Assume that you have goals like your child’s education, your child’s marriage, buying a car or buying a house, for all these, I can have multiple strategies so there is no rule that your investment strategy has to be won for all your goals, no, it can depend, but before I choose my investment strategy, I have to do a KYC? KYS. I just said KYS and not KYC. By the way, what is KYC?
What is KYC?
KYC is knowing your customer or knowing your client but, that is done by businesses to understand their client. I personally believe that first it should be KYS, know yourself. Who are you? If you understand who you are, based on who you are, your investment strategy can be decided.
But, based on what parameters? So, first of all, you have to understand age okay, so if my age is whatever okay I’m younger, then I have a better risk-taking capacity right, so my strategy can be comparatively higher risk strategy.
If I were 60 years of age, my income earning from that point in time can comparatively reduce. Active income can reduce, in that case, my risk-taking capacity will be comparatively less, and my strategy will change accordingly. So, if you are at a younger age, your investment strategy can be a bit aggressive, that’s just one parameter though.
The second parameter can be a time horizon, if I have to choose for a long-term goal, okay, my time horizon is high, for example, my child’s marriage, ideally, he will marry is what I believe but, anyways let’s say it’s a 20-year time horizon from date.
In that case, do you feel that I can take a better exposure for equity as compared to debt, yes, definitely, because equities can be a good long-term investment rather than a short-term investment? So, depends on the time horizon as well. Any other point, yes. It’s a number of dependents, so for me, who all are dependent on me?
Right now, only my child is dependent on me, but if I had a lot of dependents, something like, ghar mein boodhe maa baap hai, kammo ki shaadi hai, all that right, in that case, my risk-taking capacity would have been lower. Because I have only one dependent on me right now, I can take a higher risk, I can choose my strategy for investing accordingly.
How Is My Income?
My income is fixed or my income is unstable if my income is fixed okay if my income is fixed which is not but it’s okay, if it is fixed then I have a higher risk-taking capacity but for me, even if I don’t have a fixed income, I know that there is some XYZ benchmark and I do have kind of a higher staking capacity right, so depends on your income as well and the last one is your risk profile.
How Is Your Risk Profile?
For me, I have done my risk profiling and my risk-taking capacity is above average, so based on all these parameters, I know who I am, I have done a KYS and that’s how I will choose my own investment strategy. Well, I have done this exercise of KYS. I know myself and I know that I am a stockaholic, if you are then you can also check out my collection by clicking this I button.
So the previous part I talked about risk profiling typically there are three types of risk profiles, one is a conservative, one is moderate and an aggressive risk profile, okay. So, you have to understand, you have to choose your own risk profile based on these three categories.
Now we move on one step further wherein we say that there is a connection between the risk and returns, so always remember, the higher the risk, the higher the potential returns and for that, we typically talk about a risk-return trade-off, what does this mean if you are going for a lower risk your potential return is lower,
a simple example can be an investment in FDs but, as you climb up this risk-return trade of highest point where you have highest possible returns, simple example, you’re investing in small caps, the possibility of you getting higher returns is more. And with this base understanding, now, let’s move on to different strategies, different investment strategies that you as an investor can choose.
Well, there are many investment strategies, today we are going to focus on the top five investing strategies. The very first one that we are going to discuss today is the value investing strategy. Now what’s this value investing strategy, you invest in stocks that are currently undervalued, in simple words their current value, which we call an intrinsic value is lower than their market price than their current market price okay.
So instead of you understanding this, I will give you a very simple example of this. This is a comment that I received on my pro-investor special fundamental analysis video. The comment says that ma’am you charged us 399, but the knowledge that we got was 39999. So, the price paid by the investor was three ninety-nine but, the value that he got was thirty-nine thousand nine ninety-nine.
Now you can just imagine that if this had happened with the stock then what could he or she, an investor could have paid 399 would have gotten a value of 39999, would this have been instantaneous, no. This will happen over a period of time. So will you have to buy and wait patiently, answer is yes. So, this goes as a buy-right, sit-tight strategy okay? So, I hope you have understood, what is the focus of value investing.
The focus is to actually try and find stocks that are currently available at a discount to the current market price. But do you think that process is very easy, no, you have to actually do a lot of fundamental analysis, you will have to check the valuations of these stocks, but if you don’t know how to do the valuations, we do have a course on value investing wherein,
I have taught how to actually value the stocks based on PE, PB, EBITDA, and many many more, right? So, coming back to the discussion, if you want to know how I pick stocks, do let me know in the comment section. I can make a separate video on that as well. So, as of now,
I hope you have understood what is value investing strategy the major focus in the portfolio almost 80 per cent should go to value investing, balanced and 20 can go for the debt portion. The second strategy is the growth investing strategy. Now, what do we mean by that?
You invest in stocks that are having a very high growth, the growth in terms of what, growth for a company can be in terms of its top line, which is revenue, can be in term of its profitability, its bottom line, or if you are talking about the growth of a YouTuber it can be based on the subscriber count right. So, you invest based on growth but, how can I decide whether it’s really high growth or not, so you can compare it with its peers, its competitors or you can compare it with the industry average right?
So, if I am talking about a company, which has a little bit high market price as compared to its intrinsic value but, it has a fantastic growth rate, can I still go and buy that stock?
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Can I Still Go and Buy That Stock?
the answer is yes., this means that if I am talking about growth investing strategy, the focus is not on comparing market price versus intrinsic value but, the focus is on whether the stock is giving very good growth or not. So, if you are an investor in this strategy then what is your focus, your portfolio focus should be on high-growth stocks, should be on mutual funds which are investing in high-growth stocks and a minor portion of your portfolio should go for debt.
Well, I hope you have understood what value investing and what is growth investing but, but let’s take a very different, very nice example to understand the exact difference between these two okays. So, I know this is a train but assume that it’s an investment opportunity okay, so like the train is on the platform right now, if you’re an investor, you go inside the train, have a comfortable seat and you sit through the entire journey of the train, it’s like value investing.
You are understanding the potential of that stock before it has kicked off, you enter it at the right time and you sit through it through the entire journey by right sit tight through the entire journey, but, if this had been a growth investing strategy, you don’t buy, you don’t buy into that train ticket until and unless it has started its journey, until and unless it has proven its growth okay.
So once the train starts with a good speed, that’s where you will jump inside it and then you will ride the balance journey so I hope you have understood. The next investment strategy is the income strategy, which means what?
You invest in investment avenues that give you a steady stream of income, so this steady stream of income can include dividend income, interest income and whatnot. So how do you get this, possibility number one invest in stocks which can give you steady dividends or you can invest in REITs which can also give you a steady dividend.
Possibility number two, you invest in bonds or debentures which give you steady interest, who will be interested in such an investment strategy, it will be generally retirees whose active source of income has vanished. The next investment strategy is conservative investing.
You know there are some people who say that, if I invest or if I put 100 rupees in the stock market, I don’t want like 100 ka 200 ho Jaye, but at least 100 should be safe, that’s more or less like a conservative strategy. These people are generally people who have a low to moderate risk-taking capacity, where do these guys invest, should they be investing in small caps, or mid-caps, no?
They should be investing in large caps, blue chip companies. So, for them, a typical investment portfolio can look something like this where, a major chunk, almost 70 to 80% can go into fixed income securities like debentures, like bonds and a minor portion, 10 to 20% can go into equities but again, as I mentioned in blue chip stocks.
The last investing strategy for today is an aggressive investing strategy, it’s exactly the opposite of the previous one which was a conservative investing strategy. Who will go ahead with this strategy, those who are high-risk takers, so where can they invest?
Can they invest in small caps, yes, in mid-caps, yes? Can they also invest in commodities or collectibles for that matter, yes? So, if you have heard about the latest fad, latest fashion and correct collectibles which are NFT if you don’t know about it, it’s okay we can discuss that in some other videos of mine.
But, as of now, I hope you have understood what could be this investing strategy. A typical portfolio mix of such a person can be like 70 to 80 % can go in equities, small caps, and mid-caps. 10 to 20 % can go in something like debentures or bonds but, I can also say a small percentage of that can go even in very high-risk assets, like as I mentioned collectibles or can also go for Cryptocurrency Investment.
Well, I hope you have understood all the different different investment strategies that we discussed today. I hope you enjoyed our Blog on the various types of investment strategies. If you want to check out, is there any website that talks about not only these five investment strategies but many more investment strategies, that are the solution for you?
It’s Small Case, what you have to do is just visit smallcase.com, hit discover small cases, in that, choose all small cases. So, whenever you scroll down a little bit, that’s where you’ll get all the investment strategies, that’s a complete list of investment strategies so, for example, we discussed value, we discussed growth, the dividend is nothing but income, they have many many more investment strategies.
Plus, what you can do is you can also select how much amount you’re okay investing it with plus, you can also choose how much volatility you are okay with. By the way, this volatility is nothing but volatility as compared to the Nifty 50. So, I am giving you an example, assume that you want to choose growth as an option, plus you wish to say that okay I am good with medium kind of volatility, then all these are the different small cases that you get access to.
Here the minimum amount which you can you will have to invest is also mentioned plus whatever is the CAGR that’s the compounded annual growth rate, that will also be mentioned so you can choose from a bunch of investment strategies from a small case. Also, if you want to open an account with Zerodha, a link is also there in the description box. Well, I hope you have enjoyed this article on different investing strategies If you have, don’t forget to share this with your friends.
FAQs on Investing Strategies
Why Is Diversification a Recommended Investment Strategy
You may diversify your investment portfolio by investing in a variety of stocks, shares, funds, industrial sectors, or even geographical regions. By diversifying your investment portfolio, you can smooth out performance and minimize risk, regardless of economic conditions.
Can You Patent an Investment Strategy
The USPTO differentiates between business models and business methods. The art, method, or process must be useful, novel, and non-obvious in order to be patented, just like any invention. A legal boundary exists between your strategy or vision and your actual method of conducting business.
A Lifetime Strategy for Investing
It provides an overview of the investment philosophy of the American Association of Investment Institue. The book is organized under the heading “AAII Philosophy of Investing”, and it advocates a well-diversified, long-term, buy-and-hold portfolio that is primarily invested in common stocks or money market funds.
Is Universal Life Insurance a Good Investment Strategy
The majority of people would be better off investing their money in their RRSPs or TFSAs rather than universal life insurance. If you are a high-income earner who has exhausted all of your other investment options, you might consider universal life insurance.
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