Stock Investment Strategies

In the stock market, the best stock investment strategies are usually the ones that have been proven reliable over a period of time and the longer the better. Sadly, in the investment industry, there are numerous vendors that recommend investment strategies based on everything from planetary alignment to harmonic price patterns making the decision on which approach to use incredibly difficult not to mention frustrating for many investors. Combine that with countless TV shows, newsletters, and “professional” advice, it can be next to impossible to find a strategy to help you achieve your investment goals. Fortunately, there are a few key investment approaches that have withstood the test of time and most of the great investors throughout history have used on of these approaches to some degree or another and, now, so can you.

Decades ago, Benjamin Graham, wrote his book, “Security Analysis”, based on his experience with seeking out companies that were considered bargain stocks based on his analysis of a company’s intrinsic value which later became known as value investing. Value investing is predicated on finding companies that have a strong competitive advantage within their marketplace and a greater asset value than their current capitalization of their company. By taking total account of the outstanding shares of a company and then comparing it to the value of their listed assets minus their liabilities, then analyzing their competitive advantage in the market where they compete, Graham could find companies that were undervalued and promised a good return when taking into account their future prospects.

Graham not only succeeded in becoming an outstanding investor but he taught the method to a new generation of investors including Warren Buffett and Marty Whitman. Both Buffett and Whitman went on to manage billions of dollars of investment capital while achieving outsized returns far outpacing the stock market average using Graham’s approach, value investing. The success of Graham and his students – Buffett and Whitman – have gone on to inspire countless mutual fund managers and Wall Street professionals to follow value investing having proven itself one of the best investment strategies.

Growth investing is based on finding stocks that are offering a new product or service coupled with a competitive advantage in companies that are considered up-and-coming leaders in the stock market. These stocks quickly rise from start-ups with a small capitalization to growing rapidly which is reflected in their strong revenue growth, rising sales growth, and increasing quarter over quarter earnings. Examples of strong growth stocks in their day and age are companies like Home Depot, Walmart, Dell Computer, and Starbucks who started small while perfecting their business models and then once they established their footprint in their marketplace, took off like gangbusters with spectacular growth returning multiples of thousands of percent of return on money invested.

Trend-following is another investment strategy where a the study of fundamentals takes a back seat over price action itself and its direction. Trend-following has been made famous by hedge fund managers like Richard Dennis who was made famous for his Turtle Trading Project where he took a diverse group of people with different backgrounds and no trading experience, training them in the trend-following method, where they went on to become successful traders in their own right. Dennis became world-famous for his method of trend-following after story has it that he came to Wall Street with less than $200 and went on to roll that into over a $200 million fortune.

Many trend traders were also recognized and made famous after being featured in Jack Schwager’s book, “The Market Wizards”, widely regarded as his seminal work in the field of trading after having interviewed the best traders in the world to learn their approach to the market, including trend traders, Ed Seykota and Larry Hiite.

All of these best stock investment strategies can be used in combination of each other or have variations used to achieve investment success but it’s also critical that you adopt an investment strategy that suits your temperament and personal investment goals. While the strategies themselves work when applied properly, if you haven’t mastered the fundamentals as well as critical success factors such as effective entries, trade management, profit taking, position sizing, risk control, and more as well as the inner discipline to follow your trading plan, then even a winning system can product negative results if used by someone who is unable to summon the inner resources to apply the strategy in a discipline step-by-step manner.