Investment Strategy Summary

One of the original investment strategies, value investing put forth by Benjamin Graham, seeks undervalued stocks by examining key ratios and statistics related to the value of the company and its earnings. For example, the P/E ratio is the price of the stock divided by earnings. So if you have two companies with similar growth potential, but different P/E's, the one with the lower P/E is considered a better value, as you pay less for each dollar of earnings.

Current Dogs

General Electric

Morgan (J.P.) & Co.

ExxonMobile

Altria

Citigroup

SBC Communications

Du Pont

General Motors

Merck

AT&T

Another popular strategy, the dogs of the Dow strategy, seeks out of favor stocks among the thirty Dow Jones components. The strategy aims to buy the ten highest yielding stocks each year. (Yield calculated with annual dividend) The higher yield supposedly indicates oversold stocks, which will hopefully appreciate in price to bring the yield back into line with other similar stocks. There are many variations upon this theme. Most, like the Motley Fools' version, change the number of stocks, to 4 or 5, or make slight variations like skipping the single highest yielding stock, but the theory behind all of them remains the same.

Technical Analysis centers around finding patterns in stock charts which might reveal the future direction of a stock price. Supporters argue that predictable crowd mentality drives stocks to behave in certain manners. Familiar patterns emerge which includes a head and shoulders pattern, triangles, support and resistance lines, and trend lines. Momentum investing has become a popular outgrowth of technical analysis. Investors look for stocks that are on a roll, outperforming similar stocks, in the hope that the good performance will continue. Moving averages, a key tool of momentum investors, takes the average stock price over a number of trading days, often twenty. A stock above the moving average supposedly indicates momentum that will more than likely keep the stock rising, similar to a runaway train.

Day trading tries to beat the market to the punch. Relying on speed, day traders try to exploit short-term moves in stocks caused by new information. Here every sixteenth of a point counts.

Indexing, an outgrowth of recent developments in portfolio management, seeks to buy the "indexes." Investors either buy all of the components, or a basket meant to emulate an index, in an effort to achieve similar returns to such popular measures as the S&P 500, and the Dow Jones Industrial Average. Research often indicates that fund managers often fail to regularly beat popular indexes without taking excessive risk, so if you "can't beat em join em". This strategy is fundamentally different than the four strategies discussed above. Instead of actively buying and selling stocks, trying to get in during the good times and sell out before the market goes down, this strategy buys an index and then just rides it, during both the good times and the bad. As such indexing is considered a passive strategy. Also, instead of researching stocks, looking for unknown advantageous information, indexing simply takes a basket of stocks in an effort to profit from the overall economic growth of the country, instead of individual stocks.

So which investment strategy is best? That is the next topic of conversation.
[Click Here To Continue...]