Investment Strategies – Choosing Between the Specialist and the Generalist
It is common knowledge that in business you need to focus. How would this -- focus -- relate to different investment strategies? To grow into a successful stock trader you do not need an academic background, although it might help. Imagine that you start concentrating on one stock, for example an oil company. This is not the easiest choice, but it fits the setting of the example. You start with a blank slate and before you invest any amount of money you learn all about the company, the financial statements or just all the technical analysis about the specific stock. If you are not confident with technical analysis you can trust on the free technical signals provided by many providers. All you need to know is when the signal communicates a buy, a hold or a sell. Then you should learn about investment strategies. But the simplest one is just buying and selling the stock. You could elaborate this by buying and selling options, futures, selling short (stocks you do not own), but all these do not matter in tuning your investment strategy. If you are confident enough you can start trading this way. At one moment in time, your portfolio will consist of this stock but in different occurrences; a number of stocks itself, a corporate bond of the oil company, call or put options on the same stock, or even a specialized oil mutual fund. If you follow this strategy you have a limited but balanced portfolio (balanced in the time, rather than in different investments). Your strategy consists of beating the market for this hyper narrow investment category: oil. At the other end of the available strategic choices you will find the possibility to invest like a generalist. In this case (for those who start the investment game) you should learn also about the different investment instruments, like stocks, bonds, options, etc. But then, the strategy is different. Rather than focusing on one stock or company you are indifferent to companies, sectors, or even currencies. You balance your portfolio with different instruments in the way it best suits your investment profile. You may do this in an autonomous way, or with the help of a financial advisor, buying a single mutual fund. It is clear that what you win in the specialist case you loose in the generalist option; the more your focus on one specialization, the more you loose on (other) market opportunities. As it is in business... © 2006 Hans Bool Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account. |
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