Hope that you have taken action and started on creating your Warchest! Start with a small sum and see it grow. You won’t regret it.

Step 4: Determine Your Investing Style

Alright! We have finally reached the last step to prepare for your first investment. You have taken care of  all the “behind the scene” stuff, and now you have to find out what kind of investor you are!

Investing is like going to battle, you must find out which fighting style suits you, or in this case investing style. If you choose an investing style that doesn’t suit your risk profile, temperament or time allocation, you will find investing very uncomfortable and full of resistance. My purpose is to show you that investing is for EVERYONE. Yes, from a school kid to a grandparent. You just need to find your style.

Broadly, there are 4 main types of investing style: Value Investing, Income Investing, Growth Investing and Technical Investing. I will go through them briefly in this post. Note that there are even more subsets within each style so this list is not definitive.

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Value Investing

Like Gems collectors, they search for “gems” that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company’s intrinsic value.

• Aim: To take advantage of market conditions to buy stocks that are undervalued, and sell when the market price rise to the company’s intrinsic value.
• Risk profile: Low to Moderate. Depending on the investors, some only buys when the stock price is undervalued by 50% or more.
• Frequency of trade: Low to Moderate. Doesn’t trade often as such gems are hard to come by. Only buy and sell when the price is attractive
• Time required: Low to Moderate. They will spend time to research into the company but after that they don’t spend too much time reading the news as it is just distraction.
• Potential Returns: 0-20% approx.
• Famous person: Warren Buffet, Peter Lynch, Ben Graham.

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Income Investing

Like the Giants from “Jack and the Bean Stalk”, they search for “golden goose” that will continue to lay golden eggs (dividends) for them . They believe in receiving passive income from solid companies that pay out consistent dividends. While they are not too concerned with stock price movement, they would prefer to buy the “golden goose” at a low price.

• Aim: Buy into companies that pay out consistent or rising dividends as a passive income. 
• Risk profile: Low. Due to the need for dividends, they will search for fundamentally strong companies that will continue to pay dividends no matter good or bad times.
• Frequency of trade: Low. This is because dividends are distributed half yearly or annually. Hence, they need to hold on to the stocks for longer periods of time.
• Time required: Low to Moderate. They will spend time to research into the company fundamentals. Doesn’t spend too much time reading the news unless it is the companies financial report when dividends are announced.
• Potential Returns: 5-10% approx.
• Famous person: Bill Gross, AK71 from ASSI

Growth Investing

Like Fortune Teller, they search for companies that could potentially to grow in value and predict their future value. They believe in searching for companies that are fundamentally strong but focus more on predicting their future growth. They believe that market can’t accurately measure the companies’ future value, resulting an investing opportunity in the current times.

• Aim: Buy into companies that shows potential of strong future growth, and sell when the stock price reflects the future growth price.
• Risk profile: Moderate to High. Due to the need to forecast future growth, this requires more skills and higher risk.
• Frequency of trade: Moderate to High. Growth companies are often more volatile hence the need to trade more frequently.
• Time required: Moderate to High. Much time is required to fully understand the company in order to forecast the future growth accurately. They also stay on top of company-related news which can affect future growth.
• Potential Returns: 0-40% approx.
• Famous person: Bill Ackman, Tom and David Gardner from Motley Fool

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Technical Investing

Like Sailors, they following the “winds” of the market. They study trends and psychology of the market sentiments and look for both buying and selling opportunities. They do not pay much attention to the fundamentals of the company, they focus on the charts of stock prices.

• Aim: Look for trends and signs from the charts of stock prices and take advantage of the situation.
• Risk profile: High. Due to the need to shift with the “winds” of the market, this requires the most skill of all.
• Frequency of trade: High. To capitalise on the trends and signs, they need to trade frequently. Usually trading within the day or weeks.
• Time required: Moderate to High. They need to hone their skills to a significant level before trading. They need to stay on top of the market news as any good or bad news can change the trend very quickly.
• Potential Returns: Varies. Depends on the investors’ skill.
• Famous person: Jesse Livermore, George Soros, Jim Rogers

What Type of Investor Are You?

After reading about the 4 main types of investing style, what type of investors do you think you are? Gem collector, Giant, Fortune Teller or Sailor?

Here’s a few questions to help you determine your investing style.

• What are you investing for? Capital gains or Dividends?
• What is your risk appetite?
• How much time do you want to put into investing?
• Do you keep up to dated with the news most of the time?

Personally, I’m mostly a Value Investor with a tinge of income investing (70% in Value Investing, 30% in Income Investing). Therefore, I’m a Giant Gem Collector! Well jokes aside, it is important to find a style that suits you and be really good at it. Investors from all 4 types of investing style have seen their own success. You just need to be consistent at it.

Pro Tip: Start off with a small amount of money in your first investment to hone your investing skill first.

And that concludes the final step to prepare for your first investment. Congrats for completing the series! You are awesome. You are now ready to make your first investment. This is one small step for you but a giant leap as an investor!

I hope you enjoyed this series as much as I enjoyed writing it! Leave a comment below if you have any questions or face any difficulties. I would love to help. Otherwise, just introduce yourself and say hi! Do join us at our Facebook group too. We don’t bite, I promise!

Also let me know what you would like the next topic to be? I’m always looking for new ideas.

See you soon!

Investing Always,

Pete

Please refer to the disclaimer here