Trading in shares/stocks

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Post retirement ? One need to generate enough income to maintain lifestyle without exposing own assets to much risk. There are few ways by which retirees can earn like saving accounts, pension plans, social security payments etc. I am discussing following option which, in my view among others, can also be a better option, if considered seriously. 

The idea of trading goods takes us back to earlier civilizations when businesses combine their funds to take ships across to other countries. During the middle ages, merchants assembled in the middle of town or coffee shops (in London) to exchange and trade goods from countries worldwide. Since these merchants were from different countries, need arose to establish a money exchange where trading transactions were to be managed fair. This was also required for people who needed to borrow funds and where wealthy merchants lend their money at high rates.  These merchants would then sell bonds backed by these loans and pay interest to people who purchase them. That gave the concept of creation of Stock exchange.

The first stock exchange was created in Amsterdam in 1611 when Dutch East India company became the first publicly traded company who traded its shares for many years. Dutch came to India looking for textiles to exchange with spices and established their presence  from 1605 to 1825 in Bengal and Surat.  

Due to this, other countries began creating similar companies and buying shares of stocks thus became rage for the investors. This excitement blinded the investors and they started buying shares without checking the organisation. This resulted into financial instability. They started selling their shares for which there were no buyers and subsequently, market crashed. People became accustomed to the idea of trading stocks. Then started the establishment of stock exchanges in Paris (1724), Philadelphia (1790), New York (1792), London (1801), Milan and Frankfurt (1808), Madrid (1831), Toronto (1861) and Bombay (1875).    

Investment strategies are styles of investing which help the individuals to meet their short and long term goals. It depends upon the age, lifestyle, goals,financial situation, available capital, personal situation and expected returns of the investor. Special consideration be taken into account is the Risk factor. Investors should take risk which they can afford to lose. 

Though for most investors, best approach of owning stocks is through low cost, diversified index funds, cost averaging and reinvesting dividends. To be on much safer side, following are the common investment strategies which will suit most investors -

1. Value investing - It is an investment strategy involving getting stocks which appears to be trading for less than their book value. Common sense and fundamental analysis are one of the many principles of value investing. Approach investments with a long term perspective. This policy is being followed by Warren Buffett and he made investments in Coca cola in 1988 just few months after the markets crash in 1987 and stock prices were low. Berkshire Hathaway in 1965 turning it to be world's largest holding company by buying troubled businesses and turning them around. The term 'Economic moat' floated by him means a business ability to have competitive advantages to cover long term profits and market share from competitors.    

2. Growth investing - The answer depends upon the time horizon and risk tolerance.This investment style is focused on increasing investor's capital. Such investors invest in growth stocks whose earnings are expected to rise at an above-average rate. It involves analyzing financial statements and factors of the company behind stocks. Such stocks performs best in mature stages of market cycle. This was the Philip Fisher's investment philosophy whose famous stock pick was Motorola in 1955 which he held until his death. 

3. Momentum strategy - It requires a great deal of risk and the ability to identify sectors quickly and accurately. These investors take advantage of upward and downward trend of trends in a stock or ETFs (exchange traded funds). These are bought and sold during market hours by the value of its holdings. While the share prices are determined by NAV, there may be some differences from time to time during market volatility.  

Another legendary investor, Peter Lynch, prefers companies that buy their shares back in order to expand into unrelated businesses. This buyback help to support the stock price and performed when the management feels the share price is favorable. He is known for generating a good return in Fidelity Magellan fund between 1977 and 1990.         

Intraday trading refers to buying and selling of shares on same day for financial gains. Individuals must make sure to be updated with the latest market news in order to square up their positions before the market closes on the same day to earn profit. In other words, in comparison to regulator equity investments, Intra day stands riskier due to its high volatility. For this strategy, one needs to have to take spot decisions and should be constantly on watch the movement of share prices carefully. 

To sum up, investment is important due to the nature of inflation. The money you have today might not be a worth in a year and will be much less in next 20 years or so. If one doesn't have the investment strategy which can manage the impact of inflation, please note that you are simply throwing your money away.

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