A possible critical factor behind investment mistakes or failures is not being aware of your own investing style. For example, some investors might think of themselves as coolheaded with a low-risk appetite and disliking short selling, but their investment history actually follows trends – buying stocks in the morning and selling them in the afternoon. Others may think they are going long, but are shocked when seeing a stock plunge in a short period and sell their stocks at a loss, damaging their investment portfolios. 
 

It is thus better to check your investment pattern first to set an appropriate investment strategy and select suitable stocks for successful investing. We will discuss five investing strategies:

1.   Fundamental analysis

• Buying stocks is a business acquisition. Investors are business partners and will hold stocks as long as their fundamentals remain sound and business growth remains satisfactory.
• Intrinsic stock value is evaluated before buying at an undervalued price. 
• A margin of safety is taken into account while waiting for the right time to buy, for example, at a 20% undervalued price.  
• Warren Buffet is a well-known value investor based on fundamental analysis.

2.   Technical analysis

• Investors following this discipline identify trading opportunities by perusing price trends and patterns seen on charts. Stocks look interesting when their trends are going up with unusual trading volumes.
• Investment is based mainly on the patterns seen on charts, regardless of fundamentals. Technical analysts believe all data is reflected in stock prices and select only rising stars, never falling stocks. 

3.  Hybrid system
 

• Hybrid system stock investment is based on a combination of fundamental and technical analysis techniques and supporting factors.
• An example of a hybrid system is CANSLIM, created by famous investor William J. O'Neil. Hybrid systems select growth stocks based on the following principles:
  • C: Current quarterly earnings per share (EPS) should increase by 25-50% from the same quarter’s earnings reported in the prior year. 
  • A: Annual earnings have increased over the past five years. Annual EPS growth should ideally be 25-50%, and the higher the better.
  • N: The company has new products, services, markets, business models, or brand-new technology that push its stock, sales, and profitability to new highs. 
  • S: Supply & Demand / Shares Outstanding Scarce supply of stock leads to higher demand and an environment in which its price can soar higher than those more available in the market. 
  • L: Leader / Leading Industry Market or industry-leading stocks show their superior strength over their peers.
  • I: Institutional sponsorship is essential for long-term and strong growth, so look for stocks that attract institutions and mutual funds. 
  • M: Market direction should be determined by reviewing market averages. Investors should only trade during uptrends.
     
• Good stock selection needs both fundamental & technical analysis, that is, strong performers and the right trade timing.

4.   Dollar-cost averaging (DCA) or passive investment

• DCA is an investment strategy in which an investor divides up the total amount to be invested across periodic stock or mutual fund purchases, regardless of price. The overall asset price is therefore averaged. A typical DCA frequency is monthly, which is popular for establishing investment discipline. This strategy is suitable for investors who don’t have time to monitor the right investment timing and want a long-term investment with constant investment discipline. 

5.   Trend followers (no investment strategy)

• Trend followers trade stocks after hearing news from gurus, company owners, or management without any analysis or strategy. If you are a trend follower, there is rarely a chance of investment success. Please find a better investment strategy as soon as possible.

In summary, investors should get to know their investment pattern and strategy well, so as to select assets and investment products appropriate to their requirements. Furthermore, investments need time for studying and monitoring markets. Investors need to adjust their portfolios over time to fulfill their investment goals and get closer to investment success.

Nipapun Poonsateansup, CFP®, ACC

Independent financial planner, author, speaker