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What is Active Investment Strategies
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There are two types of investment strategies in common use include:
Active strategies and passive strategies, in this article, we will only discuss the active strategies and leave the passive strategies for a new article.
Active strategies need regular decision about what securities to invest in and how much to invest, as well as the timing of the sale of assets and the reinvestment in new equities.
a) Stock selection
the investor looks for stock that is undervalued, since this offers the greatest opportunity for growth above the market averages by analyzing the publicly available information, looking for any indication that this stock is undervalued. This type of investor will hold fewer companies in their portfolio so they can stay better informed about each company’s situation, thereby providing for better management.
b) Market timing
investor attempts to purchase a stock when its value is low, and sell when its value peaks, they are relying on their ability to time the market. Very few investors over the long haul are successful at making market predictions.
c) Bond swapping
Since capital gain of bonds is linked to interest rate changes. Long-term bonds are very sensitive to interest rates. Investor attempts to guess rising interest rate times to sell long term bond and buy short term bonds and to pursue the opposite action when rate fall for capital gain.
d) Ladder approach
Investor purchase different investments that will mature at difference time, so as to provide a fixed income with low risk. |
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