I thought it might be interesting, if we could come up with a list of different investing styles, and see what people use or even find out some that people are not aware of!
Do you:
buy a stock in one lump sum, or do you do use Pint Cost Averaging?
buy and hold long term, or do you sell based on a % rise/fall?
maintain a balanced portfolio, and trim stocks that become overweight?
buy on the dip/news?
sell your original stake if your holding increases in value 100%+
stick to specific security types: Bonds, CFDs, ETFs, Inverse ETFs, Equities, Futures Investment Trusts, OEICs, Options, REITs?
use any kind of hedging strategy?
have a select group of core holdings, or do you have to keep scrolling to see all your positions in 212?
follow an investment advice service and copy their tips?
I personally consistently invest every month in equity ETFs and individual stocks (40/60 ), long-only. Buy and hold for the long term and maintain a diversified (no stock above 3% exposure, incl those from ETFs). Every quarter I adjust the weights (although I don’t rebalance, the deposits partially do that), only sell if original thesis changed for the worse.
I started back in July with individual companies but quickly realised I didn’t have the time or detailed knowledge in some cases to move forward this way.
I now cost average monthly into my ETFs. I may top up a stock if I feel it’s discounted, but very rarely.
Currently own 12 individual stocks, 1 fund, 4 ETFs(which is about 60% of my portfolio).
At the end of the year I’ll chop the recovery plays to end up with 6 individual companies to lump into my ETFs. I might even chop the fund too.
Basically, I’m passive. I don’t have to time the market this way either, which is very tricky to do particularly for a new comer.
Kind of as it’s difficult/almost impossible (due to me having ETFs). I know what currencies the stocks I have a traded in and where the companies are domiciled and have some degree of diversification there (EUR, USD and GBP) but that really doesn’t say anything about currency diversification.
Almost all stocks I have underlying operations in more than one currency, so to know the underlying currency exposure I would have to look at all companies operations and calculate it (which is basically impossible with my large ETF exposure as that’s just too much work). Most big companies operate over the US and the entirety of Europe so most of the time that’s covered quite well.
I do have certain stocks though to give exposure to regions and underlying currencies that I already know are represented less in the ETFs I own, for example, Hikma pharmaceuticals to gain exposure to North Africa and the Middle East, Tritax big box for the UK and SalMar for Norway, Bank of Nova Scotia for Latin America, Aflac for yen just to name a few. I don’t know the exact currency exposure I have but can confidently say that it’s mostly $/€ but underweight on $ in favour of some other currencies.
My main risk strategy is to be diversified (be it region-wise but also sector and company-wise) but I do have some over-exposure to Market Makers and Stock exchanges to account directly for the most risk posed to stock markets, as anything be it environmental, political or economic in nature will affect stocks through raising volatility which these partially account for.
Don’t forget a very important factor in investing, the tax optimization.
Tax matters could be relevant to some investment decisions and styles.
If you sell some positions there could be capital gains, also if you do rebalancing.
Dividends and interest income are also relevant, if you want to reinvest, the net amount will be less. Stocks paying dividends vs. not paying? ETF & Mutual Funds, Accumulation vs. Income versions?
We could also try to reduce tax bill realizing looses to offset the capital gains.
For UK investors, some asset classes have specific tax wrappers, S&S ISA, IF ISA, EIS, SEIS, that could also be an incentive to tax optimization and choosing some investment styles. I’m not talking about retirement plans or similar plans. (I don’t know if your countries have this, I saw France have some tax-wrappers for specific asset classes.)
I predominately value invest for capital gains and dividend plays.
Dividend rotation based on fundamentals and technical analysis I will switch at a target price into a new dividend play.
I look for minimum 50% capital gains. I invest a big base portion and top up until there is about 25% to run. Once my target is hit I review charts and info and either top slice or exit the position. If I let it run I set a revised stop and establish a new target.
I tend to take a contrarian approach as this is where most money is to be made in my opinion other than If you’re amazing at identifying genuine real growth at small/micro cap level.
I only invest in the FTSE as I don’t like exchange rates and tax. I hedge through sector/industry diversification as well as domestic and MNCs stocks for example Pearson trade in dollars.
Sometimes I hedge with CFD before a trading update or annual results.
Interesting to read other investors strategies, mine has changed a few times while I was learning the ropes. I started in May and I now invest in various regular paying UK dividend stocks while they are ‘on sale’. When the market recovers I’ll stop investing in them and use the dividend payments to fund a few ETF pies I’ve created, which I’ve also been topping up. Self funding investment is the goal.
4 long term holds which I add to on red days. Will only sell if thesis changes. Ideally I will hold for decades but will evaluate new opportunities and will add to my 4 if they can match or better them over the long run. Like others I’ve swapped and changed my style but I can manage 4 special companies, I’ll stretch to 6.
You are probably familiar with legendary investor Peter Lynch, who gained his considerable fame managing Fidelity’s Magellan Fund. The fund earned an annualized return of 29% during his 13 years running it, more than twice what the S&P 500 (SPY) (VOO) earned during that time.
In a 1985 Barron’s interview, he described his strategy behind the fund:
30%-45% of the fund in growth stocks.
25%-35% of the fund in conservative stocks.
The rest would be in cyclicals and special situations.
Lynch thinks in terms of portfolio construction with each bucket serving a specific purpose:
The more conservative part of the portfolio is here to offer downside protection in case of a market sell-off.
The more aggressive part of the portfolio is here to generate alpha in a bull market.
A graph and some text from a source of the Seeking Alpha article above:
The efficient frontier (12/31/2014)
A combination of asset classes reduces overall portfolio risk and can increase returns
Notice all individual asset classes are plotted below the efficient frontier line. Asset classes are not efficient on their own; they must be combined with other asset classes to improve the risk/reward characteristics of the overall portfolio.
I had some interesting debates with some MPT theorists about that, including also value investing, risk (they only consider market risk, forgetting other forms of risk)-
There is some intellectual arrogance on some math finance academics. (See LTCM)
Theoretically there are only asset classes below the line, due to efficient market theory.
There could be temporarily some assets above the efficient frontier, but due to arbitrage, they will be become below the line.
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