Thursday, April 21, 2011

Risk Marries Growth.

Investment strategy reviews:

- Value Investing: "I won't buy unless the stock is selling for less than it is worth."
- Growth Investing: "I'm willing to take some risks for portfolio growth."
- Income Investing: "This money has to last a long time, I'm playing it safe."
- Mutual Fund Investing: "I want professional expertise guiding my portfolio."
- Index Investing (Index Funds and ETFs): "I'll let the market do the work for me."
- Momentum Investing: "I want to own hot stocks until they cool off."
- Market Timing: "Ride the Bull and hide from the Bear."
- Day Trading & Technical Analysis: "I have no fear of risk; I will take big chances for big gains."

Growth:
Investors are constantly trying to find tomorrow's strongest stocks. They look for companies in the early stages of their growth cycle that are already showing signs of dominance. When they find a promising stock, they buy it even if it has already experienced rapid price appreciation in the hopes of riding the wave as the company grows and attracts more and more investors. There isn't a lot of analysis involved in growth investing; it is a criteria based strategy. When I say criteria based, I mean Growth Investors are much more concerned with whether a company is exhibiting behavior that suggests it will be one of tomorrow's leaders than they are about the fundamental or technical aspects of a stock.

Risk :
Growth investors will experience a lot more volatility than other strategies and the market. What does that mean? That means their stocks drop first and they drop the fastest during bearish periods. This is due to the nature of growth stocks, many are young companies with high P/E Ratios and are viewed as overvalued during market corrections and recessions. Growth Investors have to be willing to ride out losses until the market turns bullish again.

While Growth Investing is not as technically or analytically demanding as a strategy like Value Investing, it is still a very research intensive strategy. Growth Investors have to keep up with more than just the market, they have to know which industries, geographic regions, and stocks are hot and they also need be aware of new technologies, services and products quickly. Successful Growth Investors are constantly shifting to different types of stocks to make sure they stay invested where there is currently a lot of interest and innovation. There is an enormous amount of information available if you're trying to figure out what's "hot" in the market right now. Every web site, newspaper and magazine has a different opinion. Growth Investors have to be able to weed through all of this information and find the stocks that will be tomorrow's leaders.

Risk management is a tricky but critical component of Growth Investing. We at WiTdom have that expertise to balance growth with risk.

Thanking you

Atul Sikrai

Sr Vice President & Head of Equities

wiTdom investment advisory.


No comments:

Post a Comment