This article is written for anyone who is interested to start your investing journey. There are 4 commonly used strategies that you can consider to help you build wealth and get more out of your investment.
1. Buy and Hold
For fundamentally strong companies which are still growing or paying good dividends, this strategy works best as the share price remains stable and you get some passive income coming in through the dividend payout. It is also a hedge against inflation as the steady increase in share price over time helps to offset inflation eroding away the value of your money.
This strategy is also suitable for high-growth companies that you have strong conviction in. For example, if you strongly feel that Tesla will become the most valuable company in the world by 2030, and its share will increase from current price of $1,000 to $5,000, then it makes sense to buy and hold the shares of Tesla until it reaches its potential.
2. Buy The Dip/ Buy Low Sell High
This is a popular strategy during a market correction or market crash. When the pandemic happens in 2020, many good companies’ share prices plunged and that created the perfect opportunity to buy the dip when the stock market was in panic mode. Those who have bought at market low would have enjoyed at least 50% growth in share price after just a year. However, the challenge would be to have the courage to buy when everyone is frantically selling away. Buying the dip also helps to average down (lower the average cost price) paid for a particular stock that you own.
3. Dollar Cost Average
This is one of the most powerful strategy in investing where you buy a particular stock at a consistent interval, say monthly, regardless of the share price. In the long run, you average out the highs and lows of the share prices that you have purchased, while increasing the amount of shares that you own for that particular company.
4. Cut Loss
This is the most painful strategy to implement because nobody likes to lose money in the stock market. And we always hope that our falling stock will one day make a miraculous recovery so we can sell it off without much loss. However, cutting loss is important for us to prevent a total loss of capital, especially for stocks that are doomed to fail.
I personally waited too long and do not have the courage to cut loss for my oil and gas stocks such as Sembcorp Marine, Keppel Corp, Marco Polo Marine and now I have lost more than 80% of invested capital on these stocks.
I hope these 4 strategies are useful for your consideration as you start your investing journey. Investing may comes with risk but it can also bring great rewards. Knowledge is critical to our success and so is patience. The investment runway is long ahead so take your time to learn as much as you can to help you become profitable in investing. All the best!