4 Main Investing Strategies You Should Know | The Independent

Fundamental Investing

Fundamental analysis investing is the more traditional approach to investing popularized by the likes of Warren Buffett. The main rule of this investment strategy is to first understand how a business operates and makes money on a fundamental level. This involves studying company’s historical financial statements, as well as competitive landscape and regulatory influences, among other things. What will happen to this company’s revenue and profit for the next few years? What happens if a competitor tries to take its market share with an aggressive pricing strategy? By attempting these kinds of questions, an investor seeks to assess the true “fair intrinsic value” of a company by evaluating, and investing in a company whose stock price deviates the most from its fair value. Within fundamental analysis, there three main “strategies” that employ this framework in different styles.

Value Investing: For Conservative Investors

Value investing is a fundamental investment strategy where an investor buys stocks that trade for less than their intrinsic values. The emphasis of value investing is in downside protection. By buying assets that are grossly undervalued compared to their cash profits or net assets, a value investor seeks to limit the amount of money he could potentially lose in his investments. Investors who use this strategy believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company’s long-term fundamentals. When the market overreacts to a bad news and a company’s stock price declines well beyond its fair value, a value investor seeks to purchase stock and wait for it to return to a more “normal” level.

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4 Main Investing Strategies You Should Know | The Independent.