Stock Market investments can easily turn lucrative if handled properly. However, there is no single approach to investments that guarantee a return. That is why investors need to be made aware of the fact there is more than one way to play the game.
People are usually at a loss when it comes to the proper timing of doing trades. There is no one answer to this question. It all depends on how you approach the investment in the first place. This article presents the different strategies used by stock market investors. It provides an in-depth analysis of how each strategy works. This should help you decide which fits your investment style best.
Buy and Hold
The buy and hold strategy requires a lot of patience and vision from the investor. In order for it to work, it requires investors to stick to their guns. This is because this strategy works under the assumption that stock prices are bound to rise in a few years’ time. The logic behind this being that the economy will keep expanding in the coming years. In so doing, so will a company’s profits – thereby increasing the stock prices and stock dividends.
Of course, this strategy also factors in the fluctuations and rising inflation. But, as stated earlier, the buy and hold requires a lot of patience and vision. In the end, proponents of this investment scheme hope that these fluctuations will be resolved in due time.
There are benefits to this investment approach. Primarily, it dramatically reduces trading commissions and taxes on the part of the investor. This is because holding stocks longer entails having not having to buy and sell stocks often.
The Market Timing strategy is the exact opposite of buying and holding. Proponents of this strategy work under the assumption that investors can effectively predict market behavior. Particularly, they believe that you can tell when a certain stock will rise and fall.
So, under this strategy, the perfect time to buy is when the markets are experiencing a slump. At the same time, they believe that the best time to sell is when markets are at a high. This is so that investors can maximize the profit margins. In order to do this, market timers make use of technical analysis, fundamental analysis, and their personal intuition.
Of course, this strategy has come under fire more than once, as its effectiveness has been questioned. Many financial experts believe that effective market timing is impossibly hard. This is because it is hard to predict stock behavior. While Market Timers assume that low stocks will only get higher as time passes, there have been actual cases where their prices would fall even farther.
Another disadvantage of this would be mounting commissions. This is because Market Timing requires investors to trade often. You may not realize it immediately, but the trading fees will eventually eat away at the profit.
These are just a few examples of stock market strategies available to investors. It all depends on how you approach your investments. So, make sure that you take time before going with one.