It’s Hard To Be A Bear When Everyone Is Bullish. Part 2

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Continuation of Part 1: It’s Hard To Be A Bear When Everyone Is Bullish. Part 1

And what will you find out there in the wilderness? Three primary investment dogmas and a million different offshoots of each one. They are….

Value Investing: The idea of value investing is a fairly simple one. To find and purchase stocks that sell well below their intrinsic value. Minimizing risk in the process as the risk of a value stock going lower is diminished due to its general undervaluation. If you play your cards right and identify stocks that are not only undervalued, but those that are growing fast or turning around, the return on your investment should beat the market by a large margin. For most value investors, a long-term holding periods are a must. Warren Buffett amassed his multibillion dollar fortune through this approach alone.

Growth Investing: For the most part, growth investors are not concerned with finding undervalued securities. In fact, for quite a few growth investors’ valuations become somewhat irrelevant. Only the growth of the underlying business is all that matters. This approach presumes that if the underlying business continues to grow fast, the stock price will continue to appreciate much faster than the overall market. Yielding market beating results in the process. Yet, this approach carries inherently more risk when compared to value investing. For instance, should the company disappoint in their growth trajectory, investors can find their stocks tumbling down 20-50% or more in a matter of days, if not hours.

Active Trading: This particular approach to the market is inherently more difficult to define as it contains millions of different strategies. Everything from simple day trading to using supercomputers to run complex algorithms to trading based on planetary movement. It is highly probable that each individual trader who is serious about participating in the financial markets will have his or her own strategy. Developed though years of experience and trial and error. Understandably, the amount of risk each trader takes depends entirely on the strategy used. Yet, one truth reigns supreme in this category as well. Most traders fail to outperform the market. What’s more, a high percentage of people who attempt to make a living through this craft get washed out within a few years. Due to losses, inexperience and unwillingness to improve on their skill.

So, which investment approach is the best for our newly enlightened investors?

To be continued tomorrow……