Why You Shouldn’t Use Popular Investing Strategies
There have been four popular investing strategies since the 1930s. You might be familiar with the discount to hard book value approach, dividend model, earnings growth, and the cash flow model which coined the term “Cash is king”. Today’s strategy is all about cash return on the capital you invest. Part of the problem is that investors don’t pay attention to the old metrics anymore so if you find a company undervalued no one else might appreciate that and if other investors don’t buy into it, the share price will never go up.
Going with the old investing ways can lead to disaster.
In his great book Investing, Robert Hagstrom compares financial markets to biological evolution. There’s a tendency to think of markets as something that are established and rigid — a set of numbers that get jumbled around. But they’re not. Markets evolve over time. Successful strategies are selected, while those that are no longer effective — usually because investors gain access to better information than they had before — get pushed out.
As an investor you need to develop your own strategies in order to beat the market. Investing is not for everyone as it usually takes patience and a lot of stress if your strategy doesn’t work out. To get some ideas on how you can invest I recommend signing up for Motif. Every week they will send you the winning portfolio for the week and if you develop your own winning strategy you can even get commissions if other investors copy your portfolio.
Read about why investing strategies have to change over time.
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.