Efficient stock picking strategies are important for an investor in order to grow his/her personal wealth significantly. An investors stock picking strategies depend upon several factors including the performance of companies, market and industry trends, and share prices.
Here we are discussing some of the stock picking strategies based on different investing styles.
Through growth investing strategy, investors focus on rapidly growing companies, which are witnessing significant increase in revenues and profits. The investors who focus on this strategy aim at making money from the significant increase in the share prices of particular companies they choose to invest.
Normally, returns from growth stocks are substantially higher than that of other type of stocks. However, the risks involved in this type of stocks are high as compared to others. Growth investors pick young and fast-growing companies, despite the expensiveness of these stocks, as the investors bet on the future growth potential of the companies.
The basic idea of growth investing may differ from industry to industry and company to company.
Value investing is opposed to growth investing. Value investors focus on stocks, which are trading below their intrinsic values. Value investors look into the fundamentals of the companies carefully and they believe that the market undervalues these stocks.
Value stocks are cheaper as compared to the net asset value of their respective companies. Value investing does not mean that choosing a cheap stock, rather investing in
undervalued stocks that have good growth potential.
GARP (Growth At Reasonable Price) is a combination of value investing and growth investing strategies. Through GARP investing strategy, investors focus on stocks that are reasonably priced, at the same time possess robust growth potential.
In laymans terms GARP investors do not go for either high growth stocks that have high risks or cheaply
priced stocks, which are in trouble. So, GARP investors avoid expensive high-growth stocks. The important barometer for GARP investors is PEG ratio, which is PE ratio divided by growth.
Fundamental analysis is a stock picking strategy through which an investor or analyst tries to estimate the intrinsic value of a stock based on fundamentals. Although this strategy takes time and effort, it is best suited for long-term investors.
Through fundamental analysis, investors try to understand the earning trends of a company and expected earnings in the future, rather than market sentiments. Apart from earnings and revenues, investors also focus on factors such as, ROIC (Return On Invested Capital), ROE (Return on Equity), cash flows and P/E ratio etc.
Technical analysis, also called chart analysis, is an investing strategy through which investors gauge the future price movement of a stock through past performance. Technical analysis primarily depends upon the demand and supply of the particular stock and trading volumes.
Technical analysis is quite opposite to fundamental analysis. Technical analysts or chartists do not bother much about the intrinsic value of the particular stock. Despite the advantages and disadvantages of the above-mentioned stock picking strategies, many investors are making millions irrespective of the strategies they choose.
An investors choice of a particular strategy should depend upon his/her knowledge about the market, industry trends and growth potential of companies. Above all, an investors devotion of time and risk calculation capabilities play major role in choosing a particular stock picking technique.
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