Portfolio Managers And Their Investment Strategies
Jun 20, 2019 | 18:00 PM IST
Jun 20, 2019 | 18:00 PM IST
Investment strategies, the only difference between you and your portfolio manager in your investing life. Portfolio managers dominantly implement the investment strategies to your portfolio. This is the reason why they assure you a decent profit. How about this if you can understand these investment strategies. Maybe you can understand whats going on with your own portfolio. And can take some really great decisions towards wealth creation. Investment strategies are the complex technical aspects of the portfolio management however, we will try to get it understood in a simpler manner. Here are the most commonly used investment strategies by your portfolio manager, come lets explore them.
1. Top-down Investing
Top-down investing strategy is a strategy which focuses on a macro that is external factors first and then arrives at the stock by looking at the smaller factors. Its like planning your vacations. You first decide what kind of place you want to visit, like beaches, Temples, Hill stations etc. Once decided on this you start surfing for the near by and best possible options among them.
In the same way, your portfolio manager goes with the big themes and external factors. There are a number of external factors affecting the stock markets. Best example out of them is government initiatives, economic policies etc.
For instance, in the budget session, the government announced its plan for developing roads, and railway networks. Then the need for infrastructure is on the line. So from this theme, the portfolio manager can expect the growth in the infrastructure sector and see the potential companies to be benefited from the same. If he anticipates the growth in the certain sectors with these external factors. He starts betting on these sectors and starts exploring the potential opportunities from the same. Chasing big themes and breaking down them into specific stocks is the key approach of this strategy.
2. Bottom-Up Investing
In the bottom-up investing strategy the stock is considered first then all the external factors are analyzed. That is, the strategy believes that even though the sector is not performing very well but a company can. The investing strategy focuses on companies core aspects, like the business model, supply and demand scenarios etc. And with this, the portfolio managers arrive at the decision of long-term investment. Its exactly a reverse procedure of the top-down investing.
Its just similar to solving exam papers. You usually bet more on the question which you are very sure about. If you know that you can elaborate the answer well then you answer those questions first and rely more on them for good marks. The same approach applied to the stock markets by the portfolio manager. Once they are sure that the company can do well even in the unfavorable situations he bets on it for good profits. Though they examine the quality of management and earnings and many other factors for arriving at a stock specific investing decisions.
3. Fundamental Analysis
Fundamental analysis is a strategy where companies financial strength has been evaluated. Financial strength is evaluated with the various parameters. Some of them are earnings ratios, debt ratios, profitability and liquidity aspects etc. The strategy considers the qualitative and quantitative measures in consideration.
The strategy is considered as one of the best ways to pick the stocks with the long-term view. In a simpler way, while selecting a mobile phone or car for us what we check first is its features and attributes. Like in the case of mobile we check its, operating system, storage etc. In the same way, while selecting a stock for your long-term financial goal your portfolio manager checks out all its fundamental attributes to ensure the higher profits. To know the Fundamentally strong stocks for 2019 read Best Stocks To Buy For Long-Term in 2019.
4. Technical Analysis
Technical analysis is a strategy where stocks are been selected on the basis of trading patterns. That is it is an analysis of investors buying trend. The trends are nothing but the historical trading patterns. That is the buying and selling forces driving the stock prices marks a specific pattern. The analysis of those patterns may indicate the future course of a stock price. This strategy is a great option for short-term or intraday investors. Its a highly technical strategy which needs hardcore knowledge of the market and a skill to measure the exact direction through the patterns.
The strategy is similar to the scanners. While attempting to the competitive exams, we follow the scanner. The scanner elaborates that how many questions from the specific chapter are been asked in history. Also, it suggests you the weight of the particular chapter in the previous exams with the help of all historical data. Using this we try to make our bet that which chapters need to be focused and can reap us higher marks in the exams. In the same way, portfolio managers use technical analysis to anticipate the future trends with the historical data.
5. Contrarian Investing
In Contrarian Investing the sectors which are thrown out of focus by the markets are considered. Its similar to value investing, here the sectors and stocks which are undervalued are been selected for investment. It's just like going against the flow. Here the buying and selling are against the market sentiments. The strategy follows the analysis of all the fundamental attributes as well potential of the company. Therefore the strategy is one of the best-suited ones for long-term investors.
6. Dividend Investing
It's a strategy where the investment is made in consideration of fixed income. The name itself suggests that investment in dividend yielding instrument is preferred in this strategy. The strategy is very helpful in volatile situations. Even the prices go down at least dividend assures you an income. This is the strategy for risk-averse investors. The strategy assures the constant and regular income, however, fails to serve the best returns.
The above investment strategies are the commonly used strategies by the portfolio managers of the portfolio management services. These strategies differ each other in approach, style and selection aspects. In India, the portfolio management service providers also offer you the products based on these strategies separately. If you want to know more about these then read Best Portfolio Management Services Offered In India. However, to have an optimum diversification it is advised to have a blend of these strategies in your portfolio.
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