It is very tough for investors to choose that how they should plan a strategy for investing in stock market. Investors should plan their investment in such a way that they are able to achieve their goals which they have set regarding their investment i.e. an investor should take such measures that should be capable to earn his actual amount along with profits on that invested amount.
Investing approach can be categorised into types in stock market which can be described as:
a) top- down approach of investment in the stock market – this approach helps investors to do the analysis of the market as a whole from the way coming down towards analysing the individual stocks.
b) bottom- up approach of investment in the stock market – in this an investor first studies the individual stocks and then studies the global market and then decides that what stock to choose for his investment.
There are various strategies which help an investor to approach stock market investing which can be described as:
a) Strategy which deals with value investing – in this strategy an investor thinks he is going to own a particular piece of company for the amount which he is going to invest in company. Before investing in company an investor thoroughly studies the annual and quarterly report of the stock in which he is going to invest and then after analysing the underlying value of that stock he takes his investment decision accordingly. An investor finds an opportunity to buy a particular stock if he finds that price of the stock is below its underlying value. They think this as an opportunity because they believe that at the right time the value of the stock will rise up to its true value and they will be able to earn profits from that.
b) Strategy which deals with growth investing – investors who follow this growth investing strategy buy the stock which are expected to grow at higher rate in the relative market. These investors try to invest their hard earned money in those stocks of market which have growing earnings in a company. These investors do not analyse the underlying value of the stock nor does they consider that weather the stock price is higher than its underlying value or lower than the underlying value. These kinds of investors want to earn huge profits and want to earn more than what they have paid to buy a particular stock.
c) Strategy which deals with income/dividend investing – the investors who follow this strategy believes in investing in that company who is having the past records and history of paying dividends to its share holders. An investor should be very careful in choosing a company for dividend investment and try to choose a company who is having strong monetary fundamentals because dividend is cut or reduced with time as the particular company starts losing money at any point of time.
It is not necessary for any investor to adopt these strategies; instead they can have their own strategies and approaches towards investment in stock market. An investment approach of an investor in stock market is an important move for him. While planning his investing approach an investor should first design his investment portfolio which should contain the list of all those stocks which an investor is keen to buy. After that an investor should spend time in analysing the stocks if they will be suitable for his portfolio or not. All the things regarding the stocks will be analysed by him if he studies the annual and quarterly reports of all those stocks well and show that the stock is performing well. An investor should cover all the risk factors while deciding an investment approach.
In order to conclude this topic, we can say that the right kind of approach in investment will help an investor to earn huge profits and fetch huge return on investment which in turn will boost the morale of an investor to invest more and earn more in the stock market. One should not take any hasty decisions in choosing the right approach towards investment because one wrong decision can lead an investor to incur huge losses which in turn lead him to monetary crisis.