What Kind of Investor Are You?
One of the keys to successful investing is to identify what kind of trader you are or what kind of trader you want to become.
This is important so you can select the right kinds of stocks that fit your own risk to reward ratio and investment style.
What's interesting is that so many people believe they're one kind of investor when in fact they are something totally different.
So before you say you're a Growth Investor or a Value Investor, or etc., ask yourself;
What kind of stocks do you want to be in?
Are you looking for:
- High flyers and fast movers?
- Stocks with big earnings momentum or aggressive growth?
- Or maybe solid companies with dependable growth?
- Or mature companies with income producing dividends.
- Maybe you're looking for deeply discounted or undervalued stocks.
What kind of characteristics do you want your stocks to have?
- Low P/E ratios and Price to Sales ratios?
- Great management as reflected by a strong ROE.
- Maybe big earnings growth or earnings surprises.
- Or companies with a Zacks Rank of 1 or a 2.
What do you want your stocks to do for you?
Of course make money. But how?
- To make fast money by getting in and getting out quickly?
- Or to find long-term core holdings?
- Are you looking for stocks to generate income?
- Or are you looking for a medium-term trading strategy to actively pick stocks and grow a portfolio?
These are great questions to ask yourself.
You may also want to reflect on your current holdings and ask yourself if your answers are consistent with what's actually in your portfolio.
To make it easier to identify what kind of trader you are, let's define what the 4 main fundamental trading styles are:
Momentum
Aggressive Growth
Value
Growth & Income
Momentum:
Momentum traders look to take advantage of upward trends (or downward trends) in a stock's price or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them.
And there's a lot of evidence to support the idea that stocks making new highs have a tendency of making even higher highs. This style of trade will likely carry with it a higher degree of volatility.
Aggressive Growth:
Aggressive Growth traders are primarily focused on stocks with aggressive earnings growth or revenue growth (or at least the potential for aggressive growth).
You'll often times find smaller cap stocks in this category. Expect volatility in this style as well.
Value: Value investors and traders favor good stocks at great prices over great stocks at good prices. This does not mean they have to be cheap stocks in price though. The key is the belief that they're undervalued. That they are, for some reason, trading under what their true value or potential really is.
The above story is the opinion of the author only and it does not reflect
iStockAnalyst opinion. Further, the author is not personally advising you
regarding the suitability of the story for your investment needs. In no event
iStockAnalyst will be liable for any loss or damage including without
limitation, indirect or consequential loss or damage, or any loss or damage
whatsoever arising from or arising out of, or in connection with the use of this
information. Please consult your investment advisor before making any investment
decision.
