Table of Contents
- Bargain Hunting
- Bargain Hunting: The most profitable investment strategy
- How to find the best long term stock market investment strategy
- Howard Marks on the most profitable and the best long term stock market investment strategy
- Approaches to the most profitable and the best long term stock market investment strategy
- Cricket and the most profitable and the best long term stock market investment strategy
- Qualities needed for the most profitable and the best long term stock market investment strategy
All investors would be keen to have answers to these questions so that they scale the pinnacle of success through their most profitable and the best long term stock market investment strategy. Well, bargain per se, is the process of understanding the difference between the price and the value of a product.
Bargain Hunting: The most profitable investment strategy
Let us look at an example for understanding what a bargain is all about. A roadside shop sells old and not so new books. Customers seeking to purchase books that are otherwise priced high at normal bookshops find this shop useful. The buyer has a fair idea about the price. The value of the book as perceived by the customer may far exceed this price and this is where the bargain lies.
How to find the best long term stock market investment Strategy?
It is obvious that in order to find a bargain one has to acquire knowledge regarding the price and the intrinsic value. So how does the investor start gathering the required information?
- To start with, the investor can draw up a list of potential investments.
- Next, he can research and seek advice from people of knowledge so as to form sound estimates regarding their intrinsic value.
- He can also develop a sense of how large or small the margin of safety is in regard to price.
- Last but not least an understanding of the risks involved with each or the correlation among the various asset classes is also essentiality.
The essence of finding a bargain is in having more knowledge and information than others regarding the potential of a particular investment.
Howard Marks on the “Most Profitable and the Best Long Term Stock Market Investment Strategy”
Howard Marks summarizes by stating that the ideal place for starting a quest to find a bargain is the following places:
A) Unknown areas are not fully understood:
Supposing a new technology has come to the fore and not many people are aware of it. However, this technology could be a game-changing one in the future, and thus investing in such technology is a boon. It is likely that a lot of people would not be aware of such implications.
B) Fundamentally questionable on the surface:
There are things which “look good from far but are far from good”; similarly there are stocks that apparently do not look straight but could be potential gold mines.
A live example could be a stock that has traded below its intrinsic value for some time and does not look attractive to the buyer for any reason which does not have any relation to its worth.
C) Controversial, unseemly, or scary:
Many times we come across companies that are doing well, have a fair reputation and have also kept investors satisfied with their results. Suddenly litigation or a hefty penalty is imposed by state and government authorities which may on the outside seem to be destabilizing for the company. The investor could get scared under such a situation but perhaps better scrutiny of the company’s balance sheet will reveal that the eventuality has already been provided for in the books and hence there is nothing to worry about.
D) Deemed inappropriate for respectable portfolios:
The stock portfolio which we put together often reflects our personality. Seasoned and respectable companies with a stable record over many years may be the core of our portfolio and suddenly purchasing the stock of a small information technology company that is making waves may not seem to be a respectable option. However, being more flexible and intuitive actually helps to broaden the horizon of the portfolio.
Now let’s see the other most profitable and best long term stock market investment strategies:
1. Growth Investing Strategy
This strategy involves analyzing financial statements and fundamental factors about the stock’s company. This is done to identify a company who has the potential to grow in the forthcoming years. The financial statement is used to compare past and present data of a company or other companies within the industry. By analyzing the data, the investor arrives at a reasonable valuation (price) of the company’s stock and determines if the stock is a good purchase or not.
2. Buy and Hold Strategy
This strategy is buying investment securities and holding them for long periods regardless of fluctuations in the market. This is because the investor believes that long term returns can be reasonable despite the fluctuations. Hence here the investor has no concerns for short-term price movements. Investors like Warren Buffet and Jack Bogle support this strategy for individuals seeking long term returns.
3. Cost Averaging Strategy
It is the strategy of making regular investments in the market over time to reduce the impact of volatility. This disciplined method becomes powerful when you opt for automated features that invest on your behalf. Here the investor captures all prices. The periodic investments lower the average cost per share.
4. Value Investing Strategy
This strategy involves buying stocks that are undervalued. These investors buy stocks of sound companies that are trading at low prices that an investor believes don’t reflect the company’s true value. Some famous men who believe in this strategy are Warren Buffett, Charlie Munger, Benjamin Graham, David Dodd, Christopher Browne and Seth Klarman.
5. Dividend Investing Strategy
A dividend is the portion of profit the company gives to eligible shareholders. In this strategy, the investors find companies with a good yield that will be able to continue paying dividends. If the company can increase its dividend yield, that’s even better. Risk-averse investors are more prone to investing in high dividend-yielding stocks. Next, we will see the approaches to the most profitable and best long term stock market investment strategy.
Approaches to the “Most Profitable and the Best Long Term Stock Market Investment Strategy”
Finding bargains and adopting a defensive stock market investment strategy may not seem to go hand in hand, at least on the surface. There are in fact many types of investors,- the really aggressive ones who believe that ‘offence is the best defence’, the cautious ones who like to consult, read and weigh the pros and cons before committing an investment. There are also those who exist in between this continuum and the defensive investor is one of them.
Consistency and a disciplined approach are the keys to a good defensive investment strategy. Let us look at an example from the sport of cricket to understand what a ‘defensive approach’ is all about. In cricketing parlance, there is the term ‘controlled aggression’. It is about being sound in technique and being dogged in defence so that a really difficult ball is kept down with a straight bat. Good batsmen are always on the lookout for opportunities to score; he waits for the loose ball from the bowler and then sends it soaring into the fence for a six.
Cricket and “The Most Profitable and the Best Long Term Stock Market Investment Strategy”
Investors can also take a lesson or two from the game of cricket and play the game of ‘controlled aggression’. Just as in the case of cricket, batsmen taking undue risks can bring about their downfall, investors too, need to use their judgment (acquired through experience and knowledge) to keep out the ‘bouncers’ and ‘googlies’.
Everything in the financial world is like a double-edged sword, one edge attempts to maximize profits, while the other leads to exposure to greater risks. The choice has to be made, whether to go in for higher returns and thus invite more risks, or seek safer options and earn average returns. It is definitely advisable to think long term and not focus only on short-term gains.
Qualities needed for “The Most Profitable and the Best Long Term Stock Market Investment Strategy”
Patience and persistence are two hallmark qualities in defensive investors. It is important to remember that in the financial market there are elements that are either not known or even if known, cannot be changed. It is ‘the slow and steady” who usually wins the race and even if this may seem to be a very laid-back effort, the truth is that it is ‘better to be safe than sorry’.
The general investor should look to invest according to his profile and propensity to take risks. Finding a bargain can be achieved not by chance but by perseverance and through overall awareness about the market. Defensive investing is not a negative form of investment; rather it is an iteration of consistency and discipline.
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