What is your style of equity investment?

Every individual has his own personality traits and invests accordingly. He chooses and invests in an asset class that match his investment trait. It is no different for a fund, which comes with an investment style mandate and hence it invests in stocks that conform to its style. For example, an investor who seeks growth invests in companies that are expected to generate superior earnings growth over the long-term.

Here is a list of some common styles of investment:

Growth and Value

Value investing follows the world’s most renowned value investor, Warren Buffett. These funds invest on companies that are undervalued by the market and are trading at a discount to their intrinsic value. It is expected that these companies will get noticed by the market in the future and then generate returns. Till that time dividends tend to be a major part of the returns.

Growth investing involves identifying companies that are expected to generate superior long-term earnings growth higher than consensus growth rates. This also gets reflected in the share price rise of these companies. In the long-term, it has been observed that value investing has outperformed growth investing. Nevertheless, different market environments generate their own winners. Hence a dynamic approach is more suitable that should adjust according to the cycle.

Active Investing and Passive Investing

Active investing means you are constantly looking at your investment and churning your portfolio according to the opportunity that you see in the market. You are not a great supporter of buy and hold strategy and long-term is not very long-term for you. You constantly watch the market and your position.

Passive investment means you are not constantly staring at the market screens on your computer all day and invest your money with a long-term time horizon. You normally invest in index funds or exchange-traded funds that try to imitate certain index. Tracking an index will generally result in reduced risk due to diversification as well as lower transaction costs due to low turnover.

Income Investing

The income-focused strategy is mainly suitable for someone who needs constant income. Hence, they invest in funds that invest in companies offering a stable and growing income stream and are generally high dividend paying stocks.

Defensive or Low Volatility Investing

If your heartbeat increases with constant rise and fall of your share prices. Investing in funds that invest in defensive or low volatility stocks is meant for you. They seek to construct portfolios that capture the market return over the long-term, but with lower than market risk.