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Tuesday, July 20, 2010

Approaches to Investing

Here is a small summary of the three major approaches to investing:

1. Fundamental Analysis

Truly superior companies exist, are sometimes undervalued by markets, and can be identified by mostly financial research. Earnings and dividends, stock prices and markets can be adequately forecasted. All these can be identified by analysis of their financial statements. Buy where forecasted price is greater than current price by a satisfactory margin.

2. Technical Analysis

Patterns in past price behavior of a security in question and the overall market can be used to direct profitable trading strategies. Some technical analysts also refer to a company's fundamentals in combination with its technical indicators.

3. Efficient Market Theory

No possible market-beating investment strategy exists. All information relevant to a stock's long-term price performance, including information not publicly available, is already present in the stock price for any given period of observation.

And here are two more "truly real" ways to approach investing:

1. The Proud Way
2. The Humble Way

The proud way is for those who believe that they're smarter than everyone else and can use their insights and abilities to make superior investment choices.

The humble way is for those who believe that they don't know everything. This humble approach leads them to study what has worked over the long term and then use it.

The path to achieving investment success is in studying long-term results and finding a strategy or group of strategies that make sense.

This strategy is the humble way and it does work!