The value investing approach should serve you well if you use it for, say 80% or 90% of your stock portfolio. Be diligent, select the stocks, and sock them away for the long term as a portfolio foundation.
But that shouldn't exclude the occasional possibility of trying to enhance portfolio returns by using more aggressive short-term tactics, like buying call options.
- These tactics work faster than traditional value investments, which may require years for the fruits to ripen.
- Of course, this doesn't mean taking unnecessary or silly risks, rather, it means that sometimes investments can perform well based on something other than long-term intrinsic value.
- It doesn't hurt to try to capitalize on that, so long as you understand the risks and are willing to face losses.
- In fact, it is best to think of a short-term trading opportunity as simply a very short-term value investment - a stock, for instance, is very temporarily on sale relative to its true value.
Likewise, it's perfectly okay to put capital away for short-term fixed returns. You don't have to work hard on "due diligence" for all parts of your portfolio at the same time.
- A solid base in bonds, money market funds, or similar investments (safe blue chips with sustainable dividend yield) will produce returns and allow you to focus your energy on the parts of your portfolio you do want to manage more actively.
You don't have to use the value investing approach for ALL your investments. Depending on your goals, it's okay to mix investing styles.
Throughout market history, much has been made of the different approaches to investing. There are:
- fundamental and technical analysis,
- momentum investing,
- trading,
- day trading,
- growth investing,
- income investing,
- speculating,
- story or concept investing
- theme play, and,
- academic treatment of security valuation and portfolio theory (institutional trading).
All styles make money some of the time, but no one style makes money all of the time. Each style suggests a different approach to markets, the valuation of companies, and the valuation of stocks.
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