Investment Philosophy — Fund Manager Strategy
Investment philosophy is an evolving subject, where Portfolio managers experimented their imagination, belief and skill in the real time market and arrived at some conclusive market practice. While many investment styles are borne in academia but their confirmation and practical conclusion happened by these ace investment managers.
These strategies or approaches guide an investor while making decisions about where, when, and how to invest their money. We have indexed below some of the most practiced strategies for reference. A more detailed and example centric article will be published subsequently.
1. Value Investing:
· Focus: It Invests in undervalued stocks. It is also associated with the bottom up approach where Fund Managers actively research stock.
· Key Figures: Benjamin Graham, Warren Buffett.
· Principles: Buying stocks that are undervalued based on intrinsic value; focusing on fundamental analysis.
2. Growth Investing:
· Focus: Investing in companies expected to grow at an above-average rate. Most popular strategy for any growing market like India. It is closely associated with the Top down approach.
· Key Figures: Philip Fisher, Peter Lynch.
· Principles: Emphasizing future potential, investing in emerging industries, and looking at earnings growth and revenue.
3. Income Investing:
· Focus: Generating regular income from investments. Debt oriented Scheme and Portfolio strive for regular cash flow. Scheme managing Annuity and pension also follows this model of investment strategy.
· Key Figures: John D. Rockefeller.
· Principles: Investing in dividend-paying stocks, bonds, and other income-generating assets.
4. Index Investing:
· Focus: Replicating the performance of a market index. It is a passive style of investment management. Popular in developed economies where outperforming index is supposed to be a difficult proposition and hence, they prefer index investment.
· Key Figures: John Bogle.
· Principles: Using low-cost index funds or ETFs to mirror the performance of indexes like the S&P 500.
5. Contrarian Investing:
· Focus: Going against prevailing market trends. It is risky and tactical in nature. It has found Favor with investors having a high risk appetite.
· Key Figures: David Dreman.
· Principles: Buying when others are selling and selling when others are buying; seeking opportunities in market pessimism.
6. Momentum Investing:
· Focus: Capitalizing on market trends. It is more of a trading strategy than investment strategy. Traders speculating on market direction tries to optimize their return on momentum roll. Long term investors use this strategy for re-balancing their portfolio within the same asset class also.
· Key Figures: Richard Driehaus.
· Principles: Buying stocks with strong recent performance and selling those with poor performance.
7. Environmental, Social, and Governance (ESG) Investing:
· Focus: Investing in companies with strong ESG practices. It is among the latest strategies. It is more guided by ethical and moral practices instead of any investment or valuation consideration.
· Principles: Considering environmental impact, social responsibility, and corporate governance in investment decisions.
8. Quantitative Investing:
· Focus: Using mathematical models and algorithms. It is quite old but quite popular strategy. Fund managers prefer this strategy to overcome their personal biases. The message is — Numbers convey far more discipline than Text.
· Key Figures: Jim Simons.
· Principles: Employing statistical and computational techniques to make investment decisions.
9. Behavioural Investing:
· Focus: Considering psychological factors in investing. Investors are illogical and irrational. Their decision is marred by personal biases. Investor return is not aligned to market return. Customizing Investment portfolio as per behavioural biases finds favour in PMS/ AIF or big ticket investment.
· Key Figures: Daniel Kahneman, Richard Thaler.
· Principles: Understanding and exploiting irrational behaviors and cognitive biases in the market.
10.Global Investing:
· Focus: Investing in international markets. As the investment opportunities are emerging all across the globe, Money changes them for premium return.
· Principles: Diversifying investments across different countries to benefit from global economic growth.
11.Speculative Investing:
· Focus: High-risk, high-reward opportunities. One of the best and the most practiced trading techniques. One can speculate on either Direction, volatility, or both to maximize their return.
· Principles: Investing in volatile and uncertain markets, such as startups, cryptocurrencies, or commodities.
Each philosophy has its own merits and risks, and the choice of philosophy often depends on an investor’s goals, risk tolerance, and time horizon.
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