The most successful investors all apply a certain philosophy to their approach – a predefined and honed strategy to handling their stocks and shares.
It can be a subtle influence; not determining individual decisions, but providing an umbrella blueprint as to the sort of equity acquisitions they seek.
From the choice of company or sector in which to invest to the way in which they ride the often volatile markets, many will fine-tune their own personal approach as they continue on their journey.
But a word of warning; while the skeleton of your personal investing philosophy can be constructed from day one, experience may change its bone structure.
After all, it is as much about understanding the intricacies of the markets, the trends, and recognizing the risks inherent in a particular approach, as it is a fail-safe guidebook.
Some, for example, may follow the example of Warren Buffett – one of the richest men in the world and recognized as one of the most successful investors of his generation.
He adopts what is known as a value investment approach. This involves identifying stocks felt to be undervalued in the hope they will rise in value over time.
Those following a similar path will factor in the company’s overall worth; researching its level of liquidity and debt. They will pore over profit margins and a host of other financial indicators.
Potential, built upon sound financial foundations, is what those following such an approach seek to identify.
The philosophy is relatively simple; the execution only after thorough due diligence on the part of the investor.
Others opt for a growth-driven investment philosophy. Here, fledgling companies with a high sales volume and year-on-year earnings growth are identified in their early stages with the hope investment now will deliver profits if they continue to flourish.
Increasingly popular is Socially Responsible Investing (SRI) – a philosophy which aligns itself very much with the value and beliefs of the investor.
They will look to pump funds into stock of environmentally-conscious companies or those who pursue a certain sustainable agenda. For those involved, it can deliver a very satisfying approach; but one which, in this day and age, requires the canny investor to sort the wheat from the chaff.
A well-known proponent of such an approach is philanthropist George Soros.
Creating a portfolio built around sound knowledge of global markets, he has pursued an SRI approach and one which has paid handsome dividends.
Then, of course, there is one for those who want to swim against the tide of popular opinion.
The contrarian investment philosophy will see these seeking to acquire stocks in companies where shares are being off-loaded by the majority; or selling when everyone is clamoring to buy.
It is not an approach for the faint-hearted or those without a firm grasp of market and sector trends. Buying when everyone is selling, rather than eventually delivering big profits, could see you left with next no nothing – not to mention requiring a high level of patience.
As you build your portfolio you will start to appreciate your own philosophy when it comes to buying and selling. It may not be apparent at first, but it will start to emerge.
Whatever approach you take the one core attribute which belongs to all is one of research. Do your homework on the markets. Identify the risks you’re personally prepared to take in pursuit of future profitability.
Investors should recognize and accept the risks associated with investing.
Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.
You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.
Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.
The Knowledge Hub does not constitute financial advice whatsoever, but rather provides basic general industry information.