Investment Philosophies
An investment philosophy forms the cornerstone of a sound financial strategy. It outlines your goals and helps prevent sudden decisions and market fluctuations while at the same time reducing taxes and investing fees costs.
Contrarian investors seek out undervalued assets and sell those considered overpriced, as they believe popular sentiment can mispricing.
Socially responsible investing
Socially responsible investing, or ESG investment, allows investors to match their investments to their personal values and ethics while avoiding companies that harm humans or the environment. This approach can also be combined with traditional financial considerations to provide investors with a comprehensive view of their investments.
Investors can invest in individual stocks, mutual funds and exchange-traded funds (ETFs) that meet environmental, social and governance (ESG) standards. ESG investments support companies that produce goods and services without harming people or the environment and promote equality and sustainability – criteria often set by third-party organizations that apply company by company.
Socially responsible investing dates back centuries when religious groups like Quakers and Methodists established guidelines based on moral principles for their investments. Today, this form of investment has gained increasing interest, particularly among younger investors; many sustainable funds outshone conventional funds in 2021.
Income investing
A clearly articulated investment philosophy can provide the discipline you need during market fluctuations and times of uncertainty. It also can help control emotions and focus on long-term investing; many famous investors have their own signature investment philosophies such as value or growth investing.
Value investing entails purchasing undervalued stocks through fundamental analysis and seeking to buy them at a discounted price relative to their intrinsic value, creating an added layer of safety in case market overestimates their true worth. Growth investing involves purchasing shares of companies with rapidly increasing earnings and revenues as an attempt to take advantage of rising stock prices.
Asset allocation refers to the process of investing your savings across different asset classes, taking into account your personal financial goals, risk tolerance and time horizon. Diversifying assets is key as an all-stock or all-bond portfolio may fall short of expectations; similarly an all-real estate portfolio might prove too volatile for your comfort level.
Contrarian investing
Contrarian investing involves making investments that go against current market trends. Contrarianism stems from the belief that markets are susceptible to herd mentality, leading to overpriced assets during boom periods and undervalued assets during bust periods. By going against market trend, investors may discover unmissable investment opportunities that would otherwise go unnoticed.
Contrarian investing entails purchasing undervalued assets that possess strong potential for growth. Investors typically conduct an exhaustive fundamental analysis on each underlying asset they purchase, including financial metrics and earnings potential; furthermore they assess broader market sentiment to detect market inefficiencies.
Contrarian investments may provide the promise of higher returns; however, they can be risky. They require an in-depth knowledge of the asset being invested in as well as strong conviction to withstand short-term market fluctuations and avoid being taken by surprise when sentiment shifts; furthermore it’s impossible to know when exactly a market may shift its sentiment; therefore it’s imperative not to fall for false rallies that arise due to speculation.
Momentum investing
With this investment philosophy, investors target securities that have recently shown outperformance, in the expectation that this momentum will persist. It’s similar to buying an in-demand car model wherein its resale value increases over time.
Value investing offers less stability, yet has the potential to yield substantial profits for those able to accurately identify and ride market trends. Furthermore, this approach tends to have shorter investment horizons that help capitalize on rapid market fluctuations.
Momentum investing works for several reasons. One possibility is that investors’ natural reluctance to sell losers and eagerness to sell winners leads them to underreact to fundamental news events. Another factor could be that momentum stocks typically have higher earnings expectations, making them more likely to remain outperforming peers.
