Identifying the Right Investment Strategy Is Personal

Believe it or not there are a number of different investment strategies out there not to mention all the different opinions that go along with each of those strategies. It’s not surprising that it can cause people so much anxiety to the point of just giving up and relying on the trusty “pin the tail on the donkey” strategy.

At the time you are ready to invest, be it in your 401k plan or your own mutual fund account, it’s important to identify the best strategy for your personal situation. Don’t be concerned with how your neighbor or co-worker invests.

Before identifying the best strategy for you, there are a number of questions to answer which will guide you in meeting your goals and objectives while being in line with your risk tolerance and time horizon. Keeping this in mind, the following are some possible investment strategies that may fit your personal situation.


  • Analysts believe they can identify industries/stocks that are mispriced in order to achieve a return in excess of the market
  • Rely on analytical research, forecasts, and the manager’s own judgment and experience in making investment decisions on what to buy, hold and sell
  • Market timing – strategy of making buy/sell decisions by attempting to predict future price movements; usually the focus is on timing the overall market
  • Exploit market inefficiencies by purchasing securities that are undervalued or by short selling securities that are overvalued
  • Usually not concerned with long-term investing
  • Watch the market every day


  • Goal is to replicate the return earned by a part of the market
  • No particular management style will consistently outperform the market averages
  • Constructs portfolio that mirrors a market index
  • Low-cost, minimal turnover
  • Tend to be more tax efficient
  • Normally long-term timeframe
  • Don’t want to watch the market everyday

Buy and Hold

  • Can be used with any investment style
  • Low-cost, minimal turnover
  • Tend to be more tax efficient
  • Goal is to buy when price is low and watch it grow


  • Utilized in passive investing
  • Portfolio constructed to mirror the investments within a particular index (i.e. S&P 500)
  • Low-cost, minimal turnover
  • Tend to be more tax efficient


  • Identify stocks of companies whose earnings are growing faster than most other companies and expected to continue – earnings momentum
  • Tend to buy when at the high-end of their 52-week price range
  • Have a high price to earnings (P/E) ratio
  • Usually low to zero dividend payout


  • Identify stocks of companies whose price is low relative to the company’s earnings or book value
  • Looking for a bargain, currently operating at a loss (no P/E ratio)
  • Tend to buy when at the low-end of their 52-week price range
  • Limited info requires a review of company’s financial statement – look for large cash surplus

Market Capitalization

  • Selection of stocks based on the size of a company
  • Small cap market cap = $300 million to $2 billion; generally higher return, more volatility than large cap
  • Mid cap market cap = $2 billion to $10 billion
  • Large cap market cap = over $10 billion; generally, more stable, possible dividend


  • Basically, taking the position OPPOSITE that of other managers or general market beliefs
  • Buy when all are selling and sell when everyone is buying


  • Focused on generating portfolio income
  • Usually more heavily weighted with debt securities (bonds)

Capital Appreciation

  • Looking for opportunities for appreciation
  • May involve different alternative investments (i.e. options, futures, IPOs, day trading)


  • Recognition of two kinds of risk: systematic and unsystematic
  • Systematic (external/non-diversifiable): factors that affect all businesses, i.e. war, global security threats, inflation
  • Unsystematic (internal/diversifiable): factors unique to specific industry or company, i.e. labor union strikes, lawsuits, product failure
  • Goal is to reduce risk, limit volatility, and improve portfolio performance

As you can see most are pretty straight forward, but some may require more explanation. It’s also important to determine which strategy or strategies match you and your goals/objectives. And, remember your investment strategy is not necessarily concrete and may need to change as your risk tolerance and time horizon changes.

Given the possible complex issues that can arise in this determination, it might be best for you to meet with a financial advisor. A financial advisor can assist you in establishing the best strategy for your situation.

If you need a financial advisor or know someone who would benefit from one, please send them my contact information along with this blog.