Good Morning DINKS. Usually in our Stock Market Showdown series we compare the stocks of different companies in the same industry, but today we want to compare different stock investing strategies. If you invest in individual stocks we want to know what types of stocks you are buying in your personal investment portfolio. Some investors like to see constant growth through dividends, some investors bet on the underdog as they take a value approach to investing, and some others just invest in stocks of companies that they love.
What is your stock investing strategy?
– Investing in Growth Stocks. One of the main reasons why people chose to invest in stocks is because they want to watch to watch their stock prices increase and their investments grow. People who are looking for growth investments usually purchase stocks of large corporations in popular industries such as consumer staples.
Growth stocks are stocks of companies that have a history constant growth in the past such as Fortune 500 companies. These corporations have been around for a long time because they provide a product or service that people need or that they are accustom to. Large companies can survive a recession and they have long term sustainability. Examples include companies such as Coca Cola, Proctor and Gamble, and the Disney Corporation. These companies offer several different products in industries that people will always use such as beverages, children’s toys, media, and personal hygiene.
– Dividend Investing. Many people chose to invest in stocks that pay regular dividends because they like having the constant rate of return in the form of a quarterly or annual dividend payout. Stocks that pay dividends are also usually stocks of big well established companies who have constant growth. However instead of retaining their profits to obtain future resources or for research and development the company chooses to pay out their profits in the form of quarterly or annual dividends to their stock owners. The actual stock price does not usually increase by a significant amount like growth stocks, but investors can be comforted in the constant profits through dividend payouts. Buying the stocks of financial institutions is a common form of dividend investing.
– Value Investing in Stocks. Purchasing value stocks is a very risky investment strategy because it is based only on projections and speculation. Value stocks are stocks of companies that are currently perceived as being undervalued. This means that the price is not currently a reflection of the company’s worth and therefore investors should expect to see a huge increase on the price of their stock because eventually the industry will catch up and realize the true value of the stock.
– Stocks of Products You Love. This is my personal stock investment strategy. I purchase stocks in companies that I love or whose products I use in my daily life. My philosophy is that if I love the products or services then other people will too and therefore the company will always be around and the stocks will always make a profit. I do invest in bank stocks for their dividends but only in banks that I personally use or love. Financial Analysts can be wrong and right, but I am just not willing to invest my own personal money based on the opinions of someone else.
Photo by mountain amoeba
It is possible to find stocks that cover several of the strategies. Our company did business with a hotel REIT whose shares were undervalued and paid dividends. That translates to value investing in dividend paying stocks of products we know. :) It has worked out extremely well for us. The common stock was in the toilet last year and has almost doubled in less than a year. Of course, as the stock now becomes fully valued, we need to look around and find the next one. :)
Whichever investing strategy you pick, it has to reflect your personality. A wealthy friend of mine is a bit of a riverboat gambler and for a while I tried to step with him. However, I couldn’t sleep at night with the riskiness, because I’m innately just too conservative. He has gone on to much more wealth and I’ve lagged, but I sleep easy because the stocks I pick are less risky.
Your last sentence hits the nail on the head: there’s no “money for nothing” (despite what Dire Straits says). If you expect to invest with zero time on your side to research/manage the investment, you will be disappointed. It’s like a marriage – it takes some give to get some take. It’s not rocket science (if I can do it…) but it dos take a little time. The geek in me calls it not rocket science but pocket science. :)