Every share investor enjoys hunting out profitable companies they can invest in, and hopefully finding a potential ten-bagger that will make them rich, but there comes a time when you have to analyze your portfolio and make harsh decisions if you're not beating the overall market.
After all what is the point in spending hours and hours researching different companies if the end result is that you are underperforming the overall market. You may as well just invest in a tracker fund that tracks the market or a top performing mutual fund and spend your time doing more worthwhile things.
I know it can be quite exciting doing your own research and investing in the companies of your choice, but professionals are paid to do the same job and will generally have access to more information than you do, and can make better informed decisions.
So take a look at your share portfolio over the years and see how it's performed in percentage terms. Then compare this to the performance of the FTSE 100, for example (or the Dow Jones if investing in US shares) and see how you compare. If you find that the overall index has seriously outperformed your own efforts then something is seriously wrong here, and it might be an idea to seriously rethink your investment strategy.
For instance, taking the FTSE 100 as an example, this index has increased dramatically between 2003 and the start of this year, almost doubling in value so almost all good quality companies will have risen a lot during this time. Now look at the companies you invested in during this time. If they didn't rise substantially during this period when the market as a whole was extremely bullish, then your investment strategy is seriously flawed.
If however, you achieved excellent gains in percentage terms then your individual share picking strategy is of course justified, although it might still be an idea to place your money in a tracker or mutual fund, depending on your performance.
This isn't always true though, because it's important to note that portfolio managers have more constraints placed on them in terms of the types of companies they can invest in, plus of course there's the added fees you have to pay for their service, so ultimately it's a matter of choice and convenience.
I personally have done extremely well investing in my own portfolio over the years and have plenty of time to do my own research. However for people who have busy lives and have maybe shown that they are not that successful in managing their own portfolio and selecting individual companies to invest in, then paying someone else to do it for you is probably the better option.
Oct 31, 2008
The World Of Stocks: Penny Stocks, Small Cap Stocks, Growth Stocks, Value Stocks And Technology Stocks
The stock market offers several kinds of stocks with one of the most popular being penny stocks. It is difficult to discuss all of the types of stocks in just one article, but we will address several including penny stocks and small caps as well as others.
The type of stock an investor invests in depends on their risk tolerance. Some investors prefer individual stocks, some prefer mutual funds. Some investors prefer Dow stocks. Penny stocks can be risky and each investor has to decide on their risk tolerance level.
Value stocks are a popular type of stock category for investors to screen. Value stocks are those stocks that trade at a low price relative to its fundamentals and considered undervalued by value investors. Some characteristics of a value stocks include a low price-to-book ratio, high dividend yield, and/or low price-to-earnings ratio.
Fundamentals include dividends, earnings, revenue, balance sheet items and other. Benjamin Graham and David Dodd are credited with pioneering value investing. Value investing is one type of stock investing for those looking for bargain stocks and cheap stocks.
Penny stocks are common stocks that trade for less than $5.00 a share and are traded over the counter (OTC) through quotation services such as the OTCBB or the Pink Sheets. Penny stocks generally have market caps under $500M, trade under $5.00 per share and are considered speculative, particularly those that trade on low volumes over the counter.
There are several stocks that trade on the NASDAQ and AMEX that trade under the $5 level as well. Other terms to describe a penny stock include nano caps, microcap stocks, and small caps. Investors considering penny stocks have to evaluate their risk tolerance. Many consider penny stocks risky and speculative.
Growth stocks are stocks that increase in value (earnings growth, market capitalization, price) and yield a high return on equity, known as ROE. To calculate ROE, divide the company’s net income by the company’s equity. During some years growth stocks do well, in other years value stocks perform better. Generally, for a stock to be in the growth stock category, analysts expect to see at least 15 percent return on equity.
small cap stocks are known popularly as small caps. These stocks are a popular stock market segment for stock research by investors. Small cap stocks are stocks of companies with a market capitalization of less than $1 billion. Microcap stocks are stock of companies with a market capitalization of less than $250 million.
It is important to understand market capitalization. Most new investors look at the stock price, but the important number to look at is market cap. Market cap is a measurement of corporate or economic size. It is calculated by multiplying the number of shares outstanding times the share price of a public company.
Technology stocks are generally traded on the NASDAQ exchange, but can be traded on several other exchanges. There are several technology stock sectors including the Internet, Cable & Satellite, Computers & Chips and others.
The type of stock an investor invests in depends on their risk tolerance. Some investors prefer individual stocks, some prefer mutual funds. Some investors prefer Dow stocks. Penny stocks can be risky and each investor has to decide on their risk tolerance level.
Value stocks are a popular type of stock category for investors to screen. Value stocks are those stocks that trade at a low price relative to its fundamentals and considered undervalued by value investors. Some characteristics of a value stocks include a low price-to-book ratio, high dividend yield, and/or low price-to-earnings ratio.
Fundamentals include dividends, earnings, revenue, balance sheet items and other. Benjamin Graham and David Dodd are credited with pioneering value investing. Value investing is one type of stock investing for those looking for bargain stocks and cheap stocks.
Penny stocks are common stocks that trade for less than $5.00 a share and are traded over the counter (OTC) through quotation services such as the OTCBB or the Pink Sheets. Penny stocks generally have market caps under $500M, trade under $5.00 per share and are considered speculative, particularly those that trade on low volumes over the counter.
There are several stocks that trade on the NASDAQ and AMEX that trade under the $5 level as well. Other terms to describe a penny stock include nano caps, microcap stocks, and small caps. Investors considering penny stocks have to evaluate their risk tolerance. Many consider penny stocks risky and speculative.
Growth stocks are stocks that increase in value (earnings growth, market capitalization, price) and yield a high return on equity, known as ROE. To calculate ROE, divide the company’s net income by the company’s equity. During some years growth stocks do well, in other years value stocks perform better. Generally, for a stock to be in the growth stock category, analysts expect to see at least 15 percent return on equity.
small cap stocks are known popularly as small caps. These stocks are a popular stock market segment for stock research by investors. Small cap stocks are stocks of companies with a market capitalization of less than $1 billion. Microcap stocks are stock of companies with a market capitalization of less than $250 million.
It is important to understand market capitalization. Most new investors look at the stock price, but the important number to look at is market cap. Market cap is a measurement of corporate or economic size. It is calculated by multiplying the number of shares outstanding times the share price of a public company.
Technology stocks are generally traded on the NASDAQ exchange, but can be traded on several other exchanges. There are several technology stock sectors including the Internet, Cable & Satellite, Computers & Chips and others.
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