April 3: Philosophies Used With Stock Trading

by David Jenyns on April 3, 2007

Because stock trading can be such an intimidating task, it is important to study the philosophies of others who are more seasoned at stock trading in order to form your own philosophy that will ensure your success. By studying the stock trading philosophies of others, you are enabling yourself to be knowledgeable about suggestions that have proved successful in which you can incorporate into your own philosophy. Creating your own stock trading philosophy can be a fun and rewarding adventure as you continue to learn how to make money by investing in stocks. Below are three stock trading philosophies that will shed some light for you to help you shape a philosophy that will best suit your needs.

The Growth Philosophy

Investors whom are supporters of the growth philosophy are interested in purchasing stocks from companies who show potential for earning more and more as the company grows. People who fit into the philosophy are even willing to take a risk and invest in the stock of a small, new company if they feel it will eventually grow. Needless to say, there is a high risk with this philosophy because people in this category take the knowledge that they possess and make a guess as to whether a certain company will be successful. If that person emotionally feels that a certain company has the potential at success, then that person will immediately invest in that possibility. Basically with the growth philosophy, an individual is relying on their opinion as opposed to solid facts and investing their money into a big possibility instead of a stock that has a little more stability.

The Value Investor

Value investors are on the look out for stock purchases that other people have overlooked, especially if the stock of a certain company is priced lower than that of their competitors. A value investor is interested in purchasing a low price stock that will create a high potential of earning a significant amount of profit. The difficulty with this philosophy is that the value investor must be certain that there are immoralities with the company that they are planning on purchasing stocks from.

In other words, value traders must ensure that the company they are purchasing stocks from does not have a negative agenda by selling lower priced stocks to stockholders. Basically, the philosophy of the value investor is to find a solid company to purchase low priced stocks from and then hold those stocks until the company becomes recognized and the return rate on the stocks sky rockets. With this philosophy, there is moderate risk involved because a value investor must be absolutely sure that the company in which they are interested in is solid, reliable, and honest. This requires extensive research on the part of the value investor about any company chosen to purchase stocks from to ensure that the business will not take advantage of their stockholders.

The Income Investor

This is the most straightforward and conservative philosophy dealing with stock trading. An income investor obviously uses income as their motivator, so they must target big companies that offer consistency as well as high returns on their stocks. The target companies for this philosophy are the large, well established economical monsters that seem to rule the market. As the stock prices increase, the income investor simply trades in their stocks for their high return of investment and uses the money to purchase more stocks in the same company, knowing that the next return on investment will be significantly higher as the company gains more and more stockholders. Even though all stock trading philosophies have some type as well as degree of risk involved, the income investor philosophy offers the lowest risk possible.

These three philosophies work to accompany the stock trading scene. It is quite possible that you fall into more than one of these categories. If this is the case, take a little knowledge from each of the three philosophies and work to develop a stock trading philosophy that will work to fulfill your investment goals. If you feel that you fit into only one of these stock trading philosophies, then, use those particular characteristics to mold the philosophy to fit into your unique situation.

Remember that these philosophies only offer a model for you to consider, leaving you to create the final stock trading philosophy that you can work with.

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