Investing isn’t something you do without preparation and careful planning. The most successful investors therefore have their own investment philosophy which is tailored to their attitude to risk, what they want to invest in, and their overall goals.
This article will explain what an investment philosophy is, provide some different examples of investment philosophies, and how to choose yours. Let’s dive in with the all-important question.
What is an Investment Philosophy?
An investment philosophy covers the principles that guide your investment decisions. It’s not a strict set of rules, more a set of guidelines, and your philosophy will depend on what you want to achieve and how you want to get there.
What Are The Different Investment Philosophies?
Value Investing
Value investing is the process of buying stocks that you think are undervalued. The goal is that they will rise and return the most money. To select value investments, you’d choose companies that you think are underrated or about to experience significant growth.
Fundamental Analysis Investing
Fundamental analysis relies on companies with strong earning prospects. It’s a case of researching different businesses to surmise whether or not they will earn a lot of money and thus increase their share value over time.
Growth Investing
Growth investing focuses on newer companies that are outperforming their competition. The goal of growth investing is to invest in businesses that continue to grow in terms of sales and earnings, in the hopes that their stock prices will also rise in time.
Socially Responsible Investing
Socially responsible investing focuses on companies whose practices align with your values and beliefs. These kinds of investments are also called ESG investments, standing for environmental, social, and governance.
Environmental means the company’s environmental impact, social refers to relationships with employees, suppliers, customers, and communities, and governance is how robust their leadership and internal controls are.
Technical Analysis Investing
Technical analysis is the process of analysing historic market data about companies and finding patterns in trading activity to identify attractive stocks. This will guide decisions to buy and sell and will mould your portfolio.
Contrarian Investing
Contrarian investing is going against the crowd and assuming that the market is wrong. As a result, contrarian investors sell at rallies and buy when the markets tumble. Although it sounds counterintuitive, some of the most famous and successful investors like Warren Buffet are self-proclaimed contrarian investors.
However, as you might expect, it’s an incredibly risky strategy to use if you aren’t a professional in the industry.
How to Choose Your Investment Philosophy
Choosing your investment philosophy is a case of what feels most comfortable out of the options above.
Whatever you choose, it’s highly recommended that you speak to a financial adviser who understands the markets and how they behave. They’ll help you steer your investment portfolio and establish your investment philosophy, and will have tips and advice to help your investments perform over the long term.
Conclusion
No two investors are alike so it’s up to you to establish your investment philosophy. For guidance around your portfolio and to set up an investment strategy built around your circumstances, attitude to risk, and long-term goals, speak to one of our experts.
Call 020 8366 4400 or email enquiries@cedarhfs.co.uk to find out more.