Choosing an investment style is the first step to becoming a successful share market investor.
There are 4 main investment styles – value, growth, income and momentum.
Within each style there are a myriad of different strategies that investors might adopt.
There is no one correct style. There are strategies within each style that can outperform the market over the long term.
You should therefore choose the style that suits your personality.
Value investors buy companies when the share price is low relative to the earnings, sales, cash flow and book value.
Growth investors buy companies that are growing their earnings per share in a rapid manner.
Income investors buy companies for the dividend.
Momentum investors buy the leading stocks in the best performing sectors.
Whichever style and strategy we choose, it is important that we stick to that approach.
There is no strategy that outperforms all of the time, and when we are going through periods of underperformance, it can be difficult to stick.
The solution is to have 100% confidence in our strategies. With confidence it is easier to stick.
That type of confidence is only possible if we have compelling empirical evidence our strategies work over long term time frames.
Diploma of Company Analysis and Portfolio Management
Financial Markets Institute of Australia