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Introduction to the Foolish Investing Strategies
USINFO | 2014-01-03 14:14
In its mission to educate the individual investor, The Motley Fool employs a handful of stock market investing strategies that all attempt to beat the performance of the humble index tracker. However, these strategies are not magic formulae that will guarantee you will make an investment fortune.
There are simply no certainties in the stock market. And there is no such thing as the "correct" way to invest either, although there are plenty of "incorrect" ones. What brings real success to stock market investment is not so much the actual method of investing as the investor's application, knowledge and profound belief in a preferred and sound process.
The Foolish strategies will offer guidelines to investing, not hard and fast rules. Over time, the greatest investors have all taken on board investing methods from other people, but gradually adapted the techniques to suit their own personality and comfort.
All the Foolish strategies vary in terms of their approach, in the method of share selection, time horizon and the tolerance to risk. Mismatching your investment aims with the wrong strategy is the quickest route to stock market disaster.
The Qualiport
The Qualiport's motto is "to buy great companies at attractive valuations and hold for the long term". The portfolio is loosely based around the philosophy of Warren Buffett, the famed US investor, who has accumulated $30b over his lifetime solely through stock market investment.
The type of company this Foolish portfolio searches for is one with a proven and superior financial record, whose business and products lead to a relatively predictable future and whose share price is attractive. The trouble with such enticing companies is that they are few and far between, and the ones that do exist are rarely attractively valued. This usually leads investors who follow this route to hold a small handful of companies, and then make relatively few, but large, investment decisions as and when valuations become attractive.
Identifying companies that have a superior financial history requires a good understanding of accounting. Being able to grasp the importance of margins, cash earnings and returns on shareholders' equity is all-important for those looking towards taking up the Qualiport selection process. The other key concept is valuation. Understanding this is another must before following the Qualiport's philosophy. If the distinguished record of Mr Buffett inspires, then click here for details.
Value
Value investing is at the other end of the investing spectrum. While the Qualiport and Rule Shaker try to choose inherently strong businesses and look to hold their investments for the long term, value players seek the complete opposite. Short-term investments in relatively poor businesses is the name of the game.
A contrarian nature is required. Value investors will be looking in unloved sectors, hunting for unloved companies. The theory goes that depressed valuations will be eventually recognised in some way and so the "value" will be outed. Being very selective by setting low valuation ceilings is a key principle in this game, to offset the potential damage a genuinely bad company can produce.
Any prospective value investor will need to know most of the important valuation ratios. A fair amount of accounting knowledge is generally required, but not much. Usually, very low valuation ceilings will minimise the downside of any accounting question marks. If you fancy going against the crowd, click here.
High Yield
If you want to maximise your income but minimise the amount of time you spend working on your investments then try this on for size. It's designed as a 'buy and hold forever' approach. For more details click here.
Golden Rules
Before you adopt one of these Foolish strategies, absorb these golden rules.
Evaluate all the above strategies first, before diving head first into the stock market. Look for the one that instinctively appeals and that you feel most comfortable with.
Don't follow success blindly. If fellow Fools or the Foolish online portfolios are successful in an alternative philosophy, don't immediately write off or switch from your chosen method.
Don't be afraid to tweak the selection criteria as time goes by. We do.
And just to reiterate, there is no such thing as the "correct" way to invest, although there are plenty of incorrect ones. What brings real success to stock market investment is not so much the actual method of investing, but the investor's application, knowledge and a profound belief in a preferred and sound process.
And if you didn't understand a word of this, or you think following a Foolish strategy looks far too much trouble than its worth, or indeed you consider all the strategies to be one-way tickets to bankruptcy, then that's fine by us. You may wish to consider an index tracker instead.
There are simply no certainties in the stock market. And there is no such thing as the "correct" way to invest either, although there are plenty of "incorrect" ones. What brings real success to stock market investment is not so much the actual method of investing as the investor's application, knowledge and profound belief in a preferred and sound process.
The Foolish strategies will offer guidelines to investing, not hard and fast rules. Over time, the greatest investors have all taken on board investing methods from other people, but gradually adapted the techniques to suit their own personality and comfort.
All the Foolish strategies vary in terms of their approach, in the method of share selection, time horizon and the tolerance to risk. Mismatching your investment aims with the wrong strategy is the quickest route to stock market disaster.
The Qualiport
The Qualiport's motto is "to buy great companies at attractive valuations and hold for the long term". The portfolio is loosely based around the philosophy of Warren Buffett, the famed US investor, who has accumulated $30b over his lifetime solely through stock market investment.
The type of company this Foolish portfolio searches for is one with a proven and superior financial record, whose business and products lead to a relatively predictable future and whose share price is attractive. The trouble with such enticing companies is that they are few and far between, and the ones that do exist are rarely attractively valued. This usually leads investors who follow this route to hold a small handful of companies, and then make relatively few, but large, investment decisions as and when valuations become attractive.
Identifying companies that have a superior financial history requires a good understanding of accounting. Being able to grasp the importance of margins, cash earnings and returns on shareholders' equity is all-important for those looking towards taking up the Qualiport selection process. The other key concept is valuation. Understanding this is another must before following the Qualiport's philosophy. If the distinguished record of Mr Buffett inspires, then click here for details.
Value
Value investing is at the other end of the investing spectrum. While the Qualiport and Rule Shaker try to choose inherently strong businesses and look to hold their investments for the long term, value players seek the complete opposite. Short-term investments in relatively poor businesses is the name of the game.
A contrarian nature is required. Value investors will be looking in unloved sectors, hunting for unloved companies. The theory goes that depressed valuations will be eventually recognised in some way and so the "value" will be outed. Being very selective by setting low valuation ceilings is a key principle in this game, to offset the potential damage a genuinely bad company can produce.
Any prospective value investor will need to know most of the important valuation ratios. A fair amount of accounting knowledge is generally required, but not much. Usually, very low valuation ceilings will minimise the downside of any accounting question marks. If you fancy going against the crowd, click here.
High Yield
If you want to maximise your income but minimise the amount of time you spend working on your investments then try this on for size. It's designed as a 'buy and hold forever' approach. For more details click here.
Golden Rules
Before you adopt one of these Foolish strategies, absorb these golden rules.
Evaluate all the above strategies first, before diving head first into the stock market. Look for the one that instinctively appeals and that you feel most comfortable with.
Don't follow success blindly. If fellow Fools or the Foolish online portfolios are successful in an alternative philosophy, don't immediately write off or switch from your chosen method.
Don't be afraid to tweak the selection criteria as time goes by. We do.
And just to reiterate, there is no such thing as the "correct" way to invest, although there are plenty of incorrect ones. What brings real success to stock market investment is not so much the actual method of investing, but the investor's application, knowledge and a profound belief in a preferred and sound process.
And if you didn't understand a word of this, or you think following a Foolish strategy looks far too much trouble than its worth, or indeed you consider all the strategies to be one-way tickets to bankruptcy, then that's fine by us. You may wish to consider an index tracker instead.
