Finding Your Investment Style

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Finding a stock investment style that suits you

There are various stock investment styles that you could choose to adopt as an investor. You may have chosen your particular style without realising it, or if you are just getting started in share trading, you may be looking to find a style that suits you.

Different styles provide different outcomes and suit different types of investors. Choose a style that suits you to get what you need from your portfolio.

Technical Analysis vs. Fundamental Analysis

Choosing technical analysis or fundamental analysis will result in different ways of trading and different outcomes. Investors who look at technical analysis analyse price movement of a stock and use that to try to predict price movement in the future.

Investors who look at fundamental analysis analyse the economy, company information and company management to predict the value of a certain stock. This can involve analysis of the company’s balance sheet, cash flow statement and income statement. Checkout Etrade today to learn more about how to get involved in the stock market.

Each investment style works better on certain timeframes. Technical analysis works better for predictions in the short-term, as the indicators can change rapidly, while fundamental analysis generally works better in the mid to longer-term as it focuses on the intrinsic value of a company.

Investors who use fundamental analysis to make stock predictions usually do so with the desire to buy into assets, holding onto stock for as long as possible, allowing for an increase in value over time. This can be a form of passive income.

On the other hand, investors who use technical analysis usually buy stocks so that they can sell at a higher price to make a profit – usually within a shorter timeframe.

Active or Passive Management

As an investor, you may also have to decide which management style works for you. An active management style means you have professional money managers selecting stocks for you on the advice of financial researchers and portfolio managers.

Investors who choose this style believe it offers higher returns, however, it’s worth bearing in mind that active management can cost the investor more, as it utilises the skills and expertise of researchers.

Investors who choose passive management are generally investing for the longer term, as passive investment can often offer better returns over the long run than actively managed funds. The costs associated with passive management are also lower.

Small Cap or Large Cap Companies

Investors can also make the choice between investing in small cap or large cap companies. This relates to the size of the company – or its market capitalisation (cap). Market capitalisation is the number of shares a company has, multiplied by the share price.

Some investors choose small cap companies to invest in as they believe they have better opportunity for growth, and the potential for delivering a bigger return. However, investing in smaller caps can mean bigger risk.

For investors who are more risk-averse, large cap stocks can be a more comfortable option. These are larger companies – often well-known and in the public eye – and don’t have the same potential for growth as smaller caps as they are already large. They generally provide lower returns than small caps but they are usually less risky as well.

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