Effective investment strategy

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Posted on : 30-11-2011 | By : admin | In : Beginner Investing

Very few things last forever including the effectiveness of many investment strategies. There are some basic concepts that will never get dated such as “buy low and sell high” but most other strategies have a shelf life. You should never assume that because a strategy for stock market investing worked in the past, it will work under present circumstances. Every market crisis is different in nature and requires its own investment strategy for you to be successful… this as to whether you are in stock market investing or trading forex.

Every time there is a crisis, experts are happy to point out the appropriate safe haven investments. In the past, these have ranged from gold to bonds to stock market investing in dividend paying stocks, utilities and so on. The difficulty in this approach is to pick the appropriate safe haven such as stock market investing early and to get in quickly. Timing is important because you should be able to make your investment before other investors seeking the same safe haven drive up prices. Similarly, when the crisis is over, you should be able to exit your position before other investors exit and cause prices to drop…

Arbitrage investing strategy involves taking profits a few cents at a time with stock market investing while taking advantage of price differentials between various exchanges. This can also involve price differentials between two acids with the same cash flow characteristics. Unfortunately, the speed of information dissemination and the easy access to this information for all investors has largely eliminated low-risk arbitrage opportunities. Arbitrage is now profitable only for traders with the infrastructure to execute very large trades in the blink of an eye. Arbitrage is also something that you cannot handle through the normal retail broker…

You may not believe this but even value investing, the mantra of the successful long-term investor in stock market investing has become far more difficult to execute than before. Once again the free availability of information and the speed of the market in reacting to developments mean that stocks do not stay undervalued for a very long time. Earlier it was possible to find stocks that were genuinely undervalued in relation to their book value or their cash holdings and holding these stocks long-term was sure to bring large returns. Now, a change in the nature of stock market investing may well mean that by the time you enter the stock, it has become overvalued and you could be sitting on a potential loss.