Have you ever wondered why people choose to invest in shares?
Usually, there are two main reasons:
- They expect the share price to go up
- They expect the shares will earn them income
Apart from these reasons, there’s also the issue of your ‘share investment style’ which can influence your investment decisions.
Let’s find out what is your share investment style.
Indexed vs active investors. What is the difference?
There are two main types of share investors:
- Indexed investors. Their goal is performing within the market’s index line. These types of investors create their portfolios with the aim of reflecting the market’s indicators. It’s probably why they’re called indexed.
- Active investors. Their approach is centered around a personal value or philosophy. They create their portfolio with specific goals to exceed the market within a certain timeframe.
Understanding share investment styles
These two main types of share investors have two different share investing styles:
- The value investment style
Investors characterised by the value style are those who believe in the potential of undervalued companies. They are prepared to patiently wait for the results, because they have high expectations on the long run.
Usually, the investor notices a company they believe is undervalued, meaning the price does not accurately reflect the company’s full potential for growth and development.
These investors basically feel like they might have won the lottery.
Warren Buffett, the American billionaire who probably understands this investment style better than anyone, said, “You don’t have to understand everything in order to make good investment decisions. You just have to keep your eyes open. And whenever you see an opportunity that you like and understand, that’s your chance for a strike.”
- The growth investment style
On the polar opposite side, there’s the growth investment style. Share investors characterised by this style are focused on companies with a faster growth rate compared to their market competitors. These companies also have high price-to-earnings ratios and low dividend yields.
Share investors characterised by the growth investment styles usually target new companies or those who are expected to have a remarkable growth in the near future.
- There’s also a third investment style that is actually a blend of the two above. This style characterises those who feel like they’re in between the two investment styles.
Make sure you take calculated risks with your investments. You might be interested in discovering the warning signs of pyramid schemes.
What is your investment style?
Have you identified your share investment approach yet?
You might have pinpointed yours right off the bat, but for some of you, it’s a bit more complicated than that.
Sometimes, the market favours one investment type over the others. Therefore, there might be periods of time where growth stocks may exceed the value stocks or vice versa.
[ctt template=”7″ link=”8fUze” via=”yes” ]Tip: There are many investment portfolios that use a combination of different styles. This has the potential to ensure a consistent performance over time.[/ctt]
The truth is, there are as many different investment approaches and opinions out there as there are the number of stock investors. Ultimately, your investments will reflect a few different factors like your current situation, your risk approach and your goals for the future.
The investment markets are complex and so are stock investors. It is always best to discuss your investment approach and style with a trustworthy financial adviser. The financial specialists at Shuriken Consulting are ready to assist and advise on the best investment solutions for you. Get in touch today.