For novice investors, choosing a correct and suitable investment strategy is the first step towards financial success! A set of scientific investment strategy can not only help you rationally plan funds, but also effectively reduce risks and ensure the steady growth of assets. Find the right way to invest, not only to accumulate wealth, but also to create more possibilities for the future!
- Graham's Cigarette Butt Strategy
Graham's Cigarette Butt Strategy is a long-term proven effective strategy. Generally speaking, the Cigarette Butt Strategy is to find companies whose stock prices are lower than net current assets, but after finding them, you will find that the industry in which the company is located is often at a low point or recession, and it is often a company led by mediocre managers (the opportunity of industry tailwind + outstanding managers is a once-in-a-lifetime opportunity), so the holding time should not be too long, because time is the enemy of mediocre companies. The longer you hold, the lower the value may be. When the stock price returns to the value, you should sell it.
- Companies with excess or hidden assets
Sometimes investors may pay too much attention to a company's comprehensive profit and loss performance, but ignore the obvious undervaluation of its assets, and there may be such investment opportunities, but it should be noted that value investment is, to a certain extent, a way of treating the market as a fool and investing in your own smartest way. Sometimes excess or hidden assets may be difficult to realize, and cannot be converted into value.
- Greenblatt's Magic Formula
Joel Greenblatt himself has a best-selling book "The Profit Formula to Beat the Market". The so-called magic formula is the return on capital: pre-tax earnings/(net working capital + net fixed assets) and the return on earnings: pre-tax earnings divided by enterprise value.
The return on capital measures the ability to make money, and the return on earnings measures the stock price. The most profitable and cheapest companies will be selected by sorting these two rates. Greenblatt created an amazing performance of 40% annual return rate in this way. Although the formula is easy to use, there are still limitations in its application, because the earnings may be a one-time profit, and if the earnings of cyclical stocks are at a low level, it is difficult to use the magic formula to select, and you may miss out on the profit several times.
- Choose a top management team
A top management team can "create corporate value" and "do a good job of capital allocation". The top management team must face investors' questions openly and honestly. Excessively ambiguous answers will be deducted. The indicators that are easier to quantify are the shareholdings of directors and supervisors and the changes in insider shareholdings. A high proportion of directors and supervisors holding shares and insiders buying their own stocks are a big plus.
- Follow the orders of managers
Following orders is a common strategy. Managers will announce their own shareholding changes 45 days after the end of each quarter. The first and most popular one is, of course, Buffett.
There are at least a few things to pay attention to before following orders:
The quarterly report will only disclose long positions, and short positions will not be disclosed. Therefore, manager A may buy C stock just for hedging, which does not necessarily mean that he is optimistic about C stock.
It is important to understand the investment style of investment managers. Since the quarterly shareholding changes can be reported 45 days later and only long positions are disclosed, it is obviously more meaningful to track managers with a longer investment period and who are mainly long.
Before following orders, you should have a deep understanding of the company you are investing in. If you don’t do some research yourself, you will not know how to deal with it when the manager reports selling stocks next quarter.
- Pay attention to small stocks
Long-term statistics have proven that small stocks outperform large stocks, and small stocks have the advantages of fast correction direction and flexible mobility. Generally speaking, the management team of small stocks is also more friendly to shareholders and is more willing to answer shareholders' questions. Large stocks are tracked by many analysts, and the answering method is too bureaucratic. Another advantage of fewer people analyzing and tracking is that there is a higher chance of mispricing.
- Investment opportunities at special events
Special events are often one-time events, such as spin-offs, bankruptcy, reorganization, etc., and therefore there are possible profit opportunities. Greenblatt is also a master of special event trading, and has a deeper understanding of it in the book "You Can Be a Stock Market Genius".
- High-leverage stocks
When the economy is expanding, high leverage can accelerate profits, but when the economy is declining, high leverage has no defense. For example, when oil prices plummeted, the stock prices of many small shale oil companies with high debts broke through the bottom again and again. Investors who bravely bought at that time will now make several times the profit. Although investors who choose to buy corporate bonds also make tens of percent profit, it is much worse than those who buy stocks. It’s just that the judgment before buying stocks requires more experience and sometimes a little luck. It’s best to diversify this type of investment.
- Find investment opportunities abroad
Value investment knows no borders, but corporate governance has cultural differences. It is generally believed that Russia has a poor governance culture, while Japan and Switzerland are relatively better. Regarding foreign exchange considerations, there is a simple way to judge that when the decline of the country’s ADR is greater than the decline of the country’s currency, there may be a safety margin. For example, when the pound plummets, the decline of the UK ADR listed in the United States exceeds the decline of the pound, which may be oversold.
Beginners should remain calm and rational, and avoid speculation and blindly following the trend. The fluctuations and changes in the stock market are unpredictable, so investors should develop a reasonable investment strategy and adhere to the principle of long-term investment, avoiding short-term trading and over-trading.
Stock investment requires time, energy and patience.
During the investment process, you need to constantly learn and improve your investment ability, while also accepting the challenges and changes brought about by investment risks. Only through long-term investment and accumulated experience can you achieve real success in the stock market.
Stock investment is a challenging and rewarding activity, and it requires adequate preparation and research for beginners.
By understanding the basic knowledge and investment principles of the stock market, choosing well-known and stable companies to invest in, and developing a reasonable investment strategy, you can get long-term stable returns in the stock market.
Summary
Novice investors should choose an investment method with moderate risk, simple operation and low fees. Maintaining patience and a long-term perspective, and constantly learning and adapting to market changes are the keys to success. It is wise to fully research and consider the advice of professional financial advisors before making investment decisions.
