What is Strategy?
What is Strategy
What is Strategy?
Investing in the stock market; It can be defined as the allocation of capital to financial assets or the purchase of financial assets with the expectation of obtaining a return or profit over time. Investment strategy is the plan or road map that investors use to achieve their financial goals.
The investment strategy basically provides investors with a road map on which assets they should invest in, how much and when. In line with their financial goals, investors should determine investment strategies appropriate to their profiles to ensure correct asset allocation and keep the risk they take at a predictable level.
When determining the investment strategy; While individual characteristics of investors such as financial goals and expectations, risk tolerance and investor profile, time horizon, age, technical and fundamental analysis knowledge, lifestyle, capital and disposable income are taken into account, market conditions, macroeconomic and geopolitical factors are also taken into account.
Investment strategies are goal-oriented. Thanks to a concrete strategy, investment decisions can be aligned to specific goals. An investment strategy is designed to maximize returns based on the investor's risk tolerance and financial goals. On the other hand, regularly allocating capital to investment as a matter of strategy can create a saving habit.
Investment strategies function to filter asset classes based on investors' perception of risk. In other words, these strategies can enable investors to determine the financial assets suitable for them. In this way, asset allocation optimization is attempted. As a result of this optimization, investors can more easily buy/sell with instruments suitable for them, do not have a dilemma about their decisions, and can control their investor psychology more easily.
On the other hand, investment strategies answer the question of which asset group should be invested (depending on the investor profile and risk perception), but also seek to answer the question of how the asset distribution in the portfolio should be diversified. In short, it helps manage risk. In other words, it can enable the risk taken depending on the relevant asset group to be kept at a predictable level.
The strategies in question are; Although it is based on technical and fundamental analysis, mathematics and statistics, it also takes into account market conditions, macroeconomic and geopolitical factors. Investment decisions that are compatible with certain targets in line with scientific data provide stability. Investment strategies make it possible to determine in advance what positions should be taken for different scenarios. In periods when the wavelength is high or volatility increases, investors sticking to a predetermined plan makes emotional control possible. In this way, investors can more easily protect themselves against speculations, rumors, false expectations and suggestions.
Value Investing
Value investing, which is a long-term strategy; It focuses on the stocks of companies that have become industry leaders, have a competitive advantage, have expanded their field of activity, are well-known and have regular income flows. These partnerships can be explained as companies that cannot adequately reflect their activities and financial power in their stock value, and therefore have the potential to increase in value in the future.
Intrinsic value (true value or fair value) can be defined as the intrinsic value or market value that is tried to be determined depending on the activities, financial situation, industry and economic conditions of any company. The market value of a stock is the current or current value of the relevant security. If the intrinsic value is higher than the market value, the relevant stock may be considered cheap. In other words, the market may not yet have priced the data for the company accurately enough.
In simple terms, the shares of such companies remain cheap compared to their operations and financial strength and therefore have the potential to generate returns in the long run. Value stocks distribute some of their profits to their shareholders because they are mature companies that have expanded their field of activity. Like any investment strategy, value investing has risks. Market conditions and companies' performance may change over time. For this reason, it is important to conduct detailed market research and fundamental analysis at macro and micro levels.
Growth Investment
Growth investment, a strategy used by medium-long term investors with a higher risk appetite, focuses on the stocks of companies that have the potential to generate returns above the market average. In other words, this strategy is based on investing in companies that have the potential to become the next big brand in their sector. These partnerships; They can be defined as companies that have a story and purpose and have the potential to attract investors because they create a positive perception in the market.
These partnerships, called growth stocks, are stocks of companies that have the potential to generate high income and increase capital value in the future under favorable macroeconomic conditions. Growth stocks strive to increase their value rapidly during periods of monetary expansion when borrowing costs decrease; It focuses on increasing innovation, investments, areas of activity and therefore revenues. So they tend to pay much less dividends to their shareholders.
The primary focus of growth investing is not on generating a regular income but on long-term capital returns. Investors who follow this strategy tend to pay much higher P/E compared to growth stocks. The most important point to consider in the growth strategy is macroeconomic cycles. These companies, which tend to grow in periods when borrowing costs decrease, may not exhibit the expected performance during periods of monetary tightening. Another important point is competitive advantage. The growth stock in question can continue to grow as long as it retains a competitive advantage. However, if competition increases in its sector, the company defined as a growth stock may not meet long-term expectations. Another important thing to consider is the successful management of the company's investor relations process and the skill of the management team. Only a successful management team can direct resources to the right investments and achieve the company's goals.
Momentum Investing
Momentum investing, a short-medium term strategy based on technical analysis, focuses on stocks that are in an upward trend.
The technical analysis method is based on the assumption that the market accurately reflects all information about the relevant investment instrument, that pricing exhibits repetitive behavior, that models can be created to determine the pricing in question, and thus make predictions about the future price trends of the relevant investment instrument.
Momentum investing is a short-medium term strategy and is aimed at investors with a high risk appetite. This strategy, which is designed depending on the ups and downs in the market, requires technical analysis skills. However, even if trends are determined, stock pricing is sensitive to market developments, macroeconomic and geopolitical data flows. Therefore, investors who apply the momentum strategy must constantly follow the data flows.
Dividend Investment
Dividend investing, a long-term strategy, focuses on stocks that regularly pay dividends to investors.
The aim of investors who adopt the dividend investment strategy is to maximize their returns as a result of both the increase in stock value and the dividend (dividend) payment to be distributed as a result of the profit if the partnership operates successfully. In addition, investors aim to reduce their initial investment costs through dividend payments. In addition to choosing the right companies in this strategy, it is also important to determine from the beginning how the dividend payments will be used. Reinvesting dividends can allow for higher dividends in the future and a return on appreciation (compound return factor).
In general, companies that have become industry leaders, are mature, have expanded their field of activity, are well-known, and have more regular income streams (value stocks) have the potential to distribute more dividends. On the other hand, growth-oriented companies (growth stocks), which strive to increase their value rapidly, focus on increasing their profit margins and therefore their income, so they rarely pay dividends.
Companies have the potential to make regular dividend payments as long as profits are realized. However, although some companies make a profit, they may not decide to distribute dividends to their stakeholders. Such situations may cause both dividend income to decrease and the stock to lose value.
Cost Reduction
Cost cutting, a long-term investment strategy that can be used in combination with other strategies, focuses on reducing costs by regularly trading in market corrections or pullbacks, rather than investing in stocks all at once. This strategy is defined as dollar cost averaging (DCA) in the global finance literature.
In this investment strategy, which requires fundamental and technical analysis, it is aimed to maximize the return from stocks by reducing the average cost, while also minimizing investment-related risks. The most important factor in this strategy is to correctly interpret market or company-related declines and correctly identify the bottom points. Otherwise, investment costs may increase.
