PORTFOLIO STRATEGIES

There are numerous investment and portfolio strategies one can follow, each with its own pros and cons. While there is a certain amount of general portfolio advice, the specific approach you should choose is entirely based on your investment goals and style, as well as your personal preferences. When you or your portfolio advisor picks a strategy that best fits with your financial objectives, sticking to that portfolio strategy is usually the way to get the best results.

Types of Portfolio Strategy

Fundamental Analysis

Fundamental analysis is an investment strategy that attempts to determine a security’s intrinsic value by focusing on factors that affect a company’s actual business and its future prospects such sales and revenue growth, as well as profit metrics. There are multiple ways that an investor can perform his task, but the most common ones are:

1. Top down investing is an approach of fundamental analysis that begins by looking at the overall economy and financial world and then determining what sectors to target.
2. Bottom-up investing is an investment strategy with in fundamental analysis that focuses on individual stocks and ignores the significance of economic conditions.
3. Growth investors are investors who use fundamental analysis to identify stocks that have the potential to grow faster in earnings and sales than the overall market and their own sector, known as growth stocks.
4. Value investors use a fundamental analysis of stock value, in an attempt to identify stocks that are undervalued and trading for less than the intrinsic value of the assets of the business.

Technical Analysis

Technical analysis is a portfolio strategy that uses chart patterns and indicators like volume and prices to determine the direction of stocks. There are many types of technical analysis, such as:

1. Momentum investing is an investment strategy that targets buying stocks that have broken above resistance and have outperformed the market and have had high returns over the past three to twelve months, and selling the opposite.
2. Elliott Wave theory was developed in the late 1920s and based on the idea that stock markets, thought to behave in a somewhat chaotic manner but traded in repetitive cycles.
3. Intermarket analysis is the analysis of more than one asset class or financial market to determine the strength or weakness of the asset being considered. By looking at financial markets or asset classes together, rather than on an individual basis, the analysis identifies strongly correlated markets or asset classes such as stocks, bonds and commodities.

Short Selling

Short selling, also known as shorting stocks, is an investment strategy where investors identify stocks that appear to be overvalued and then borrow the security to sell it, with the goal to buy it back at lower price. This strategy is often combined with a long strategy to hedge risk.

Pairs Trading

Pairs trading is a market-neutral portfolio strategy that matches a long position with a short position in correlated instruments. Pairs traders wait for a deviation in the correlation, and then go long on the under-performing asset while going short on the over-performing asset. The investor would close the trade as the relationship returns to its statistical norm.

Dividend Investing

Dividend investing involves selecting companies that consistently raise their dividend. Companies that continually increase their dividend tend to be financially healthy. These companies tend to generate consistent cash flow and earnings, suggesting they are stable. This makes their stock prices usually less volatile than the market in general making them lower risk than companies that do not pay dividends and are volatile.

Fixed Income Investing

Fixed income investment is one of the portfolio strategies that is used to generate income or yield. Often it is combined with an equity strategy and is part of a balanced portfolio. This strategy can be pursued using individual bonds, bond funds, ETFs, CDs, and money market funds.

Combining Strategies

Combining fundamental analysis with technical analysis is essential to know what to buy and sell, as well as when to do it.

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