-By Mrudulkanti
Hi… dear reader you are here staked your eyes means you have keen interest in the field of investing or you have decided to invest in the most volatile and tempting financial market. Let’s dive deeper on different forms of investing. Basically there are four forms of investing depending upon the requirement and financial goal investors choose.
1. GROWTH INVESTING :- Growth investing is a process of investing in the companies, industries or sectors that are currently growing and expected to continue their expansion over a substantial period of time in this perfect competition market. The success of businesses in various sectors changes over time. However, it’s usually fairly easy to identify sectors that are “hot” in the sense of producing above-average returns for publicly traded companies.
STEPS TO IDENTIFY THOSE COMPANIES
1. STRONG HISTORICAL GROWTH:- Companies must have a track record of strong earnings growth over the previous five to ten years. The companies must have good (eps) earning per share, depending upon the sector the higher the better.
2. STRONG PROFIT MARGIN:- The company must have good profit margin. If a company exceeds it’s previous 5 years average pretax profit margin as well as of its industry then it can be a good choice.
3. STRONG RETURN ON EQUITY:- Return on equity (ROE) is a measure of a company's financial performance. It is calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE is a way of showing a company's return on net assets. An idle return on equity ratio is 15% to 20% and 5% or near it is considered as low.
STRONG STOCK PERFORMANCE :- Keep in mind, a stock’s price would double in seven years with a growth rate of just 10%. To double in five years, the growth rate must be 15%— something that’s certainly feasible for young companies in rapidly expanding industries.
2. COFFEE CAN INVESTING:- Coffee can investing is a investing strategy which encapsulates The “buy and forget” approach to investing in shares of outstanding companies that have consistently performed well and keeping them for 10 years without actively buying and selling them. Robert G. Kirby coined the term “Coffee Can Investing” in 1984. In Old West America, people used coffee cans to store all of their important things. Then, these cans were hidden beneath the mattress. The system was prevalent before the banking system was formed.
STRATEGIES TO CREATE COFFEE CAN PROTFOLIO
1. The company must have been in existence for at least 10 years.
2. The revenue growth must be at least 10% year on year,and not cagr or sagr.
3. ROCE must be at least 15% from 10 years.
4. Market capitalization must be of 100 crores or above.
5. The company should have good brand value. The company should have a competitive edge.
3. DOLLAR RATE INVESTING:- Basically it’s a part of forex market investment which involves buying one currency and selling another while attempting to profit from the trade. Assets traded in FX include currencies, contracts for difference (CFDs), indexes, commodities, spreads, and cryptocurrencies. currency trading is done electronically over the counter (OTC). All transactions occur via computer networks that connect traders worldwide. Here I emphasised dollar investing because us is the leading economy and any changes in those exchanges leaves an pivot impact on many countries including India.
STRATEGIES FOR FOREX TRADING
1. PRICE ACTION TRADING:- Price action trading is a strategy that focuses on making decisions based on the price movements of a certain instrument instead of incorporating technical indicators (e.g. RSI, MACD, Bollinger Bands). There is a variety of price action strategies you could utilise - from breakouts and reversals to simple and advanced candlestick patterns. Below is an example of a simple breakout trading strategy. 1.1772 was an important support level and our trader was waiting for a breakout to occur, so they could short EUR/USD to profit from the next leg lower. We can see that the overall trend is in their favour (downtrend). A breakout did occur and the currency pair fell more than 70 pips before eventually finding support at 1.1700.
2. RANGE TRADING :- A classic range trading strategy will tell you to sell when the price hits the area of key resistance and buy when the price hits the area of key support. Some traders will focus on two particular levels, while others will trade "bands" or "areas" - for example, if you identified 1.17 as the key resistance level but the price often stalls at 1.1690 or 1.1695, you can highlight that area (1.1690 - 1.17) and start looking for selling opportunities within it. Only focusing on that particular level might mean you will lose out on good trading opportunities, as prices can often reverse before hitting it. Below is an example of a currency pair that is range trading (EUR/SEK). The ADX has low readings most of the time, and we can see that the price has often bounced off the 10.00/04 support area while having difficulties breaching the resistance area between 10.27 and 10.30.
3. TREND TRADING:- Trend trading strategies involve identifying trade opportunities in the direction of the trend. The idea behind it is that the trading instrument will continue to move in the same direction as it is currently trending (up or down). When prices are consistently rising (posting higher highs), we are talking about an uptrend. Vice-versa, declining prices (the trading instrument is making lower lows) will indicate a downtrend. traders can use supporting tools to identify the trend. Moving averages are one of the most popular ones. Traders might simply look at whether the price is trading above or below a moving average (the 200 DMA is a popular and widely watched one) or use MA crossovers. To use moving average crossovers (which can also be used as entry signals), you will have to set a fast MA and a slow MA. One popular example is the 50 DMA and the 200 DMA. The 50-day moving average crossing above the 200- day moving average could indicate the beginning of an uptrend, and vice-versa. Below is an example with the USD/JPY and two DMA crossovers (50 DMA & 200 DMA).
4. DIVIDEND INVESTING:- Dividend investing is an investment strategy that focuses on stocks that distribute dividends. Dividends are a company’s profit which are distributed to shareholders and which are usually paid out on per-share basis. For example if a company pays dividend of rupees 10 per share quaterly and a shareholder is holding 100 shares he/she will getting 1000 in a quarter. Investors can also invest in (exchange-traded-funds) ETFs and mutual funds that invest in a portfolio of dividend- yielding stocks.
STRATEGIES TO LOOK FOR GOOD DIVIDEND YEILDING COMPANIES:-
1. Dividend payout ratio:- This is the dividends as a percentage of earnings. The dividend payout ratio is calculated by dividing the dividend amount by net income for the same period. Idle DPR is 35% to 55%.
2. DIVIDEND COVERAGE RATIO:- The Dividend Coverage Ratio, also known as dividend cover, is a financial metric that measures the number of times that a company can pay dividends to its shareholders. DCR = Net income / dividend declared. Higher the DCR the better but below 1.5 is a point to concern.
3. DIVIDEND GROWTH RATE:- The dividend growth rate tells us how much a company’s dividend has grown annually over a period of time. Higher rates may catch the attention of investors.
I hope after reading these brain storming concepts and figures patiently you have cleared your concepts on different forms of investment and now it will be easier for you to choose which one is preferable for you as per your requirement. Don’t ever get worry that you are too late in this field as age and time is just a number you can start at any age there is a Chinese proverb – “THE BEST TIME TO PLANT A TREE WAS 20 YEARS AGO. THE NEXT BEST TIME IS TODAY.”
So think wisely about your future and put a new step in the world of investment to taste the era of incredible wealth creation.
“WISHING YOU HAPPY INVESTMENT”
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