The Finatical
Week of August 2nd, 2021 - Investing Strategies, Eurozone Accelerates, Increase in US COVID Cases
FinaticTips - 3 Investing Strategies
Most investors don’t give much thought to their specific investing style. Having an understanding of different investing styles can add to your knowledge about the different approaches you can take while observing and analyzing the stock market.
There are six different investing styles that can broken down into three dimensions: active vs. passive management, growth vs. value investing, and small cap vs. large cap companies.
1 - Active vs. Passive Management
Depending on your needs and assets, you can choose different types of management that can help you meet your investing goals. Active management basically means having an army of managers and researchers who are prepared to give you endless knowledge and can nudge you in the right direction (..or wrong, who knows, maybe the team is from Stratten Oakmont). While having an active management has its perks, these management services are extremely expensive and might not be the best option for most people. If you feel you do not have the resources available for such services then you can always go for a passive management which involves low fund expenses. Empirical research also shows that passively-managed funds can offer more long term benefits than actively-managed funds.
The passive strategy involves buying and holding stocks and not frequently deals in them to avoid higher transaction costs. They believe they cannot outperform the market due to its volatility; hence passive strategies tend to be less risky. On the other hand, active strategies involve frequent buying and selling. They believe they can outperform the market and can gain more returns than an average investor would.
Each strategy has its pros and cons and you can try both to find your best fit!
2 - Growth vs. Value Investing
The growth style of investing looks for firms that have high earnings growth rates, high return on equity, high profit margins and low dividend yields. The idea is that if a firm has all of these characteristics, it is often an innovator in its field and making lots of money. It is thus growing very quickly, and reinvesting most or all of its earnings to fuel continued growth in the future. Investors choose the holding period based on the value they want to create in their portfolio. If investors believe that a company will grow in the coming years and the intrinsic value of a stock will go up, they will invest in such companies to build their corpus value.
The value style of investing is focused on buying a strong firm at a good price. Thus, analysts look for a low price to earnings ratio, low price to sales ratio, and generally a higher dividend yield. The main ratios for the value style show how this style is very concerned about the price at which investors buy in. Thus, if investors believe that a company will deliver good value in a year or two, they will go for short term holding, which is what happens in value investing.
3 - Small vs. Large Companies
The measurement of a company's size is called "market capitalization" or "cap" for short. Market capitalization is the number of shares of stock a company has outstanding, multiplied by the share price. Market capitalization tells us if the company size is small or large and depending on that investors can make their decisions.
Generally, with small companies there is potential for much higher returns as there is room for growth and startups can always boom into MNCs but with that there is a much higher risk as well. For risk averse investors, there is always the option of investing in trusted and large companies such as Apple, Microsoft, Google etc. There is less risk in this type of investing but also lesser returns as these companies have almost already explored their full potential.
FinaticTrends - 2 Financial Trends
1 - Eurozone Accelerates, UK Decelerates
Despite the recent surge in infections throughout most countries in Europe, the Eurozone has surprised us with steady numbers. Market reports that the Eurozone’s PMI for services increased from 58.3 in June to 60.4 in July, a 181-month high. Such increases were not witnessed everywhere.The United Kingdom experienced a significant deceleration of economic activity in July. The services PMI fell from 62.4 in June to 57.8 in July, a four-month low. The manufacturing PMI fell from 63.9 in June to 60.4 in July, also a four-month low. Despite the deceleration, the July numbers still indicate rapid growth in activity. The deceleration largely reflects shortages of materials and labor. The United Kingdom has lost a significant number of foreign workers due to Brexit. New orders for services declined, in part due to shortages. Demand for services was likely hurt by the growth of infections, even though economic restrictions were lifted. New orders for manufacturers remained strong. Overall sentiment deteriorated because of concerns about the delta variant. The European countries are surprising us everyday as we just predicted last week that some countries might be severely affected by the new infections but that has clearly not been the case so far!
2 - Increasing COVID Infections in the US
It seems like the battle with Covid-19 is not over just yet as a surge of infections has been reported in some US states since the past few days, namely Florida, Arkansas, Missouri, Louisiana, Texas, and Nevada. This might be a consequence of some government policies. In Florida, the state government has strongly promoted a return to normal economic conditions. And has also attempted to ban businesses from discriminating against the unvaccinated.Recent government policies regarding the use of face masks may also have invited this result. What the US has managed to build in the last few months by bringing back jobs and strengthening the economy in times of inflation can all go to waste by another coronavirus outbreak. Simply put, an outbreak would cease social interaction and people would choose to spend less on consumer services like movie theatres, restaurants etc. This might endanger the economy once again. Even after 18 months, it seems like we might be in it for the long haul!
Financial Guidance
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
Money Fact
A carolina farm boy funded the country for 25 years
The first U.S. gold rush started in North Carolina in 1803, when 12-year-old Conrad Reed found a 17-pound gold nugget on his father’s farm. It supplied all the gold for the nation’s mints until 1829.
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