What is an investment philosophy?
Many people have philosophies. And when we say philosophies, we mean that they can be in any aspect of life. For example, we have investment philosophy which refers to beliefs and principles that investors use as guides when making decisions. These are different from rules and laws. Instead, they are guidelines that consider factors like goals, risk tolerance, expectations, and time horizons. These philosophies often match with a person’s investing style.
Different investment philosophies
Have you heard of value investing? It refers to when an investor focuses on shares that seem underpriced. How about growth investing? It refers to people who are interested in companies that are in the process of growing. These are just a few of the most popular investment philosophies out there, and we will talk about them more later. If there is one thing that an investment philosophy should possess, that would be its capability to understand what the investor aims for. Aside from that, it should also consider the investor’s timeline, risk tolerance, and capital status or needs. As we said, here are some more of the most famous investment philosophies that investors have:
- Contrarian investing. Its name strongly suggests what it means. Contrarian investors always choose the opposite direction of most people. They would buy when most are selling. They would sell when most are buying. They assume that the market is most likely wrong at its extreme highs and lows.
- Technical analysis. It maximizes the use of charts and graphs. It examines past market data or history to get a visual idea of trading activities. This helps technical investors decide if they should buy or sell.
- SRI. It is also popular as “socially responsible investing” and “ESG investing.” The focus is on companies with practices that match an investor’s values as they refer to a company’s influence on the environment and society.
- Growth investing. Investors are more interested in new companies that make sales and earnings growth that are beyond average. They hope that the stock prices will rise in the future.
- Value investing. This is what we have mentioned earlier. Investors buy stocks that seem underpriced because they expect that they will dramatically increase sooner or later.
- Fundamental analysis. Investors focus on companies with strong earnings prospects.
Investments philosophies and entities
Investment philosophies tell a lot about entities like individual investors and firms. It tells us many characteristics that define them. It does not have to be perfect and consistent now. In fact, investors who have long-term success did not have investment philosophies in a day. It took time, development, and refinement. And when they do have it, they also change it overnight no matter what happens to the market conditions. Here are some of the notable and influential investors with their corresponding investment philosophies:
- Warren Buffet – Value investing
- George Soros – Momentum investing
- John Paulson – Contrarian Investing
A recap
Investment philosophies are approaches to markets, and they depend on principles, experiences, and beliefs that major impact trading and portfolio decisions. Some of the most common and famous investment philosophies include value, growth, and contrarian investing. The most notable investors most likely have their signature investment philosophy.
