Types of investors you commonly come across – Which one are you?
As investors, our main aim is to grow our wealth and gain as much value as possible for the price we have paid. This is the common goal among investors across the world. But the question is, does everyone do equally well in the game of investing? Certainly not. Some are winners in the game; some might be at the learning stage and others might be struggling to save enough to start making investments.
Investors differ based on the level of risk they take, the maturity period for which they take the risk and the type of investment they choose. Risk is the chance you take while investing your capital; the two broad classifications include, high risk and low risk. Other types of risk are the market risk, concentration risk, liquidity risk, credit risk, inflation risk and so on. The maturity period is the time taken for your investment to reap benefits. Investors either opt for short-term or long-term investments. And these investments are generally in stocks, mutual funds, real estate, gold, bitcoins or business.
In order to improve your investment profile, you need to understand the type of investor you are. Once you are aware of the pattern you follow, then maybe you can think of alternate strategies for higher returns on your investments. Based on a few common patterns observed in the investment world, here are the most common types of investors you will come across.
The buy-low sell high investor
Value investing is a style of investing that involves buying securities that are priced lower than their intrinsic value. Value investors believe that the market overreacts to the good and bad news that is not in alignment with the company’s fundamentals. This gives them the opportunity to make the profit when the price is deflated.
The buy-low sell high investor is a type of value investor. This investor prefers buying stocks when they are underpriced and selling them when they are overpriced. These investors strive to make money by continuously identifying the right stocks to invest in and selling them when the price is right. Though this might be a common pattern of investing, it has its limitations. First of all, this type of investor has to spend time identifying the right companies to buy stock from. One wrong choice and the chances of making profits reduce drastically. Secondly, they need to know when to buy the stocks and the appropriate time to exit. But getting the timing right is a bit of challenge.
The long-term value investor
Most investor gurus advice people to modify their investment strategy to become a long-term value investor. These type of investors choose the right company to invest in and then hold on to it. They are not concerned about when they should sell their investments. Rather, they focus on the question of where to invest. If the company they choose to invest in is good, they may not only hold on to it but also increase their holdings in the company.
However, the key challenge over here is to identify the right company. This requires a lot of research and analysis. One needs to think differently to be able to arrive at the right choice. Here are a few basic things to look for in a company before investing in them:
- Always invest in a growing company.
- If possible always invest at a fair price
- If the founders of the company you are investing in are still a part of the top management, then it is always an advantage.
The passive-income value investor
The passive income investor is usually a slightly experienced investor. They wish to enjoy passive income. Such investors usually invest in undervalued companies that pay out regular dividends to their shareholders. No doubt, receiving dividends is what all investors look for but not all companies pay out dividends regularly. If a company is not doing well for itself, then it does not payout dividends. An example of this would be Apple Inc. They did not pay dividends to their investors for a long time. It was only in 2012, after the success of the iPhone and the iPad that they resumed the payment of dividends. These type of investors should get out of their comfort zone of investing in shares which give dividends to other investment opportunities.
A pre-investor is someone who is yet to begin investing. Pre-investors do not allot any funds for savings or investment. They are far away from wanting to increase their wealth. For such people, spending takes precedence over saving and investing. Most of us have been a pre-investor at some point in time or the other before graduating to become different types of investors.
These are a few common types of investors found in Singapore. Which one are you?
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