Stock investing is a risky venture. It all depends on a lot of uncertain factors such as time, the trend in business, and demands of consumers. For this reason, investing in stocks is taken by many as a difficult venture to get into but it can give huge rewards as long as the investor understand the basics and most especially, he knows what strategy will work best in getting bigger gains from his stock investments. Among the most common strategies that investors use in trading stocks in the market is the value investing and momentum investing. Although both of them can be helpful in gaining more from stocks, both of them should be used in the right circumstances to get the desired results.
In value investing, investors choose the stocks which are cheaper at the time of their purchase compared to how much it will be valued in the near future. Investors who live by this strategy hopes that the worth of the stocks that they purchased will eventually increase due to some factors such as other investors taking advantage of its cheap price which will make its value higher due to the increase in its demand, or a sudden boom in the industry where the issuer of the stocks belongs to. An investor can spot a good bargain by looking into a certain factors. He should know examine certain measurement units such as the price/book value, P/E ratio and the dividend yield. It will also be helpful for the investor to know how to examine the company’s potential in the market, whether it is expected to succeed in the near future or, it will stay in its low state for a long period of time or worse, will end up worthless. Value investing is considered as a low-risk trading strategy so for those who are new to the stock market, this is an ideal strategy that they can start with although it takes a lot of research to know the real value of the stocks by having a timely update on the investing sites and financial news, to know if the company issuing the stocks is on its way to growth.
Momentum investors are those who take advantage of the issuing company’s continuous and rapid growth, faster than how the industry it belongs to is faring. Unlike with the value investors who buy stocks while they are at a low price with the hope of increasing its value in time, momentum investors buy stocks that are already highly priced but are still expected to increase in value because of its increasing success. Momentum investors also look at average companies who are doing great in the industry. Momentum investors face higher risk especially in circumstances when an issuing company may have already reached its peak. Momentum investors may gain profits in the short term basis but they face higher risk than value investors.
Investing in stocks have risks and it is important for an investor to know which strategy works best. But whatever strategy he chooses, an investor has to make a lot of research and be updated with the latest news in the financial and business sector to know the trends in the value of the stocks.
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