No strategy: Investors who don't have a strategy have been called Sheep. Arbitrary choices modeled on throwing darts at a page (referencing earlier decades when stock prices were listed daily in the newspapers) have been called Blindfolded Monkeys Throwing Darts [no source]. This famous test had debatable outcomes.[4]
[3]
Active vs Passive: like buy and hold and passive indexing are often used to minimize transaction costs. Passive investors don't believe it is possible to time the market. Active strategies such as momentum trading are an attempt to outperform benchmark indexes. Active investors believe they have the better than average skills.
Passive strategies
Momentum Trading: One strategy is to select investments based on their recent past performance. Stocks that had higher returns for the recent 3 to 12 months tend to continue to perform better for the next few months compared to the stocks that had lower returns for the recent 3 to 12 months. There is evidence both for and against[6][7][8] this strategy.
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Buy and Hold: This strategy involves buying company shares or funds and holding them for a long period. It is a long term investment strategy, based on the concept that in the long run give a good rate of return despite periods of volatility or decline. This viewpoint also holds that market timing, that one can enter the market on the lows and sell on the highs, does not work for small investors, so it is better to simply buy and hold.
equity markets
Long Short Strategy: A long short strategy consists of selecting a universe of equities and ranking them according to a combined . Given the rankings we long the top percentile and short the bottom percentile of securities once every re-balancing period.
alpha factor
Indexing: is where an investor buys a small proportion of all the shares in a market index such as the S&P 500, or more likely, an index mutual fund or an exchange-traded fund (ETF). This can be either a passive strategy if held for long periods, or an active strategy if the index is used to enter and exit the market quickly.
Indexing
Developed markets vs emerging markets: Many people use developed stock markets because they are believed to be safer than emerging markets. When investing globally you have the risk of changes in currency exchange rates on top of stock market performance. Other people pick emerging markets believing the emerging markets have higher potential for GDP growth which in turn would then affect positively the share prices in those countries. Emerging stock markets can be less well-regulated than those in the developed markets increasing risks and have greater political risks associated. The most common way of investing in global markets is through funds.
Pairs Trading: is a trading strategy that consists of identifying similar pairs of stocks and taking a linear combination of their price so that the result is a stationary time-series. We can then compute Altman_Z-score for the stationary signal and trade on the spread assuming mean reversion: short the top asset and long the bottom asset.
Pairs trade
Value vs Growth: strategy looks at the intrinsic value of a company and value investors seek stocks of companies that they believed are undervalued. Growth investment strategy looks at the growth potential of a company and when a company that has expected earning growth that is higher than companies in the same industry or the market as a whole, it will attract the growth investors who are seeking to maximize their capital gain.
Be careful of value traps. This is where stocks have good P/E ratios or NAV's (net asset values) because the stock or sector is not predicted to do well into the future by the investor public e.g. in a declining market. It can also happen if a company's past performance has not been good in the past after a sharp selloff.
Value investing
Dividend growth investing: This strategy involves investing in company shares according to the future dividends forecast to be paid. Companies that pay consistent and predictable dividends tend to have less volatile share prices. Well-established dividend-paying companies will aim to increase their dividend payment each year, and those who make an increase for 25 consecutive years are referred to as a dividend aristocrat. Investors who reinvest the dividends are able to benefit from compounding of their investment over the longer term, whether directly invested or through a Dividend Reinvestment Plan (DRIP).
[9]
Dollar cost averaging: The dollar cost averaging strategy is aimed at reducing the risk of incurring substantial losses resulted when the entire principal sum is invested just before the market falls.
[10]
Contrarian investment
[11]
Smaller companies: Historically medium-sized companies have outperformed large cap companies on the Stock market. Smaller companies again have had even higher returns. The very best returns by market cap size historically are from micro-cap companies. Investors using this strategy buy companies based on their small market cap size on the stock exchange. One of the greatest investors, , made money in small companies early in his career combining it with value investing. He bought small companies with low P/E ratios and high assets to market cap.