Investing Strategy You Should Learn
You don't have to have a strategy in order to invest. But with the right strategy, you can make investing a whole lot easier -- and more profitable.
The problem is that everywhere you turn, you see someone telling you that their strategy is the best one -- and in some cases, the only one that will make you successful. With so many different ways to profit from stocks, how do you decide which one is right for you?
Perhaps the most amazing thing about investing in stocks is how many different ways there are to make money. Let's take a brief look at some of the popular strategies many investors use:
Large-cap investors seek the stability of established companies with proven track records. Stocks like Wal-Mart (NYSE: WMT) and Microsoft (Nasdaq: MSFT) have their fastest growth phase behind them now, but shareholders don't have to worry about them going belly-up anytime soon.
Value investors look for stocks that trade at attractive prices. Like a Christmas shopper waking up at 4 a.m. on the day after Thanksgiving, value investors hope to snag bargains by buying out-of-favor stocks. While some beaten-down companies never recover, others, such as Fairfax Financial (NYSE: FFH), provide stellar returns when they come back.
Growth investors focus more on companies with strong prospects for the future. Although they prefer not to pay too much, growth investors are willing to pay up for the most promising businesses. Google (Nasdaq: GOOG) is a good example, with more than 75% annual earnings growth in the past five years.
Dividend investors value stocks that pay them back with generous income streams. Dividend-paying stocks like Duke Energy (NYSE: DUK), with its 4.8% yield, won't always show big price jumps. But over time, dividend investors hope to outpace their counterparts.
Small-cap investors look beyond the security of blue-chip stocks to find undiscovered companies, such as specialty chemical-maker Innophos (Nasdaq: IPHS), that have the potential to become the household names of tomorrow. While this strategy is somewhat riskier, small-cap investors expect the profits from their successes to outweigh the losses from failures.
International investors recognize that great companies exist throughout the world. You might not run into companies like Cemex (NYSE: CX) very much on the financial pages, but their relative obscurity can bring greater rewards as well.
You'll notice that as you read about these strategies, you can almost picture the typical investor who uses them. Stereotypical dividend investors are widows and orphans who count on quarterly dividend checks to pay bills, while international investors might bring to mind a jet-setting globetrotter with a faint British accent.