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Chapter 5 — INVESTMENT STRATEGIES
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INVESTMENT STRATEGIES

INVESTMENT STRATEGIES


Tap below to watch a short video about different investing styles, and read for more details.

Learn more about growth investing, value investing, and income investing strategies to decide which type of investment is the best fit for you.


Choosing one of the investment strategies plays a large role in your own personal investment goals. Let's take a closer look at the different investment strategies (keep in mind, these are broad categories).

Investment strategies

VALUE INVESTMENT STRATEGY

Value is one of the strategies that involves investing in stocks (or securities as a whole) whose shares seem to be underpriced. Value investors look for stocks that are “on sale” or priced lower than their intrinsic value. The intrinsic price of a company is calculated based on its fundamentals, or information such as revenue, earnings, assets, liabilities, growth, and management. When the market realizes the mispricing, the market price will rise, netting the investor a nice little profit. Of course, the only way to really know if something is under-priced is by studying the financial statements, the competitors and the overall market trends which we’ll show you how to do in later chapters.


"Know what you own and why you own it." - Peter Lynch


GROWTH INVESTMENT STRATEGY

Growth investment strategy is a strategy whereby an investor will seek out stocks that he or she believes has substantial growth potential. In this case, the investor has a strong belief that the company’s income earnings will far exceed what their respective market predicts. These companies generally reinvest much of their earnings on projects that help the company grow and increase future earnings. Thus, growth investing is essentially investing in the future growth of the company. Some investors argue that both growth and value investing are fundamentally integrated with one another.

 

INCOME INVESTMENT STRATEGY

Income investment strategy is very common. This investment strategy involves the selection of stocks or other securities that will provide a steady payout. For example, stocks that pay out dividends (which is a fancy term for when a company pays you [the investor] a small amount of money per share that you own in their company on an annual basis - basically a way of saying 'thank you' for holding their stock) would be great for an investor whose investment style is income-based. Income investors also prefer companies with stable earnings so that their dividend yields are sustainable in the long term.


"I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it." - Mark Cuban

 

 

Quiz

For a growth investor, what indicator would be the most important when picking stocks?

Correct
Incorrect
0/76 (0%) Correct
  • 1
    High profit margins
  • 2
    Low stock price
  • 3
    High earnings growth
  • 4
    High dividend yield
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Alex's thoughts: 
I like to mix all three of these styles but it takes a while to grasp them all. Over a decade ago, I started with growth investing and studied the other styles while I was investing in my growth companies. 

 

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