Strategies for Picking the Right Equities

For many investors, selecting the right investment strategy can be a difficult, challenging and time- consuming endeavor. As there are thousands of equities, mutual funds, ETFs and additional investments available for investors to choose from, how does one identify the right mix of equities and funds to invest in? Warren Buffet (one of the greatest minds in investing) once stated that an investor should know the companies they invest in AQ: I believe the actual advice from Buffet was that you “invest in companies, not stocks.” This is based on the following article link from Forbes.com. The reason I suggest revising this is because it’s not 100% clear here whether this advice is related to investments that have already been made, or prospective investments. e.g. “an investor should know the companies [they are about to invest in] [before making any investment] [they have invested in].” . In other words, you must have an understanding of the functionality of the companies you are choosing to invest in. While there are many ways to identify potential investments, here are a few simple strategies you can utilize to select the most appropriate investments for your portfolio.


Understand Your Risk Tolerance


Risk tolerance is the extent to which you as an investor are comfortable with the risk of losing money on an investment. If you're unwilling to take the chance on an investment that might drop in price, your risk tolerance is lower. Conversely, if you are willing to accept the fact that your investment might lose value, then your risk tolerance is higher. This is especially important as you begin to select various securities to invest in.


You must have an understanding of where the investment lands on your risk tolerance radar. For example, some investors are completely comfortable with a market value decline of more than 10% in their portfolio in any given day, week or month. In fact, they may even buy more shares of a particular investment during a market correction AQ: This is known as “averaging down” – it might be good to use the technical term here. . Is this you? How comfortable are you with losing money in your portfolio? Are you the type of investor who would sell your positions in the event of a market correction? These are questions you must ask yourself, because no market condition is guaranteed AQ: This phrase is unclear. What was the intention here? . Remember that investments are not FDIC-insured, may go down in value and they are currently not insured by any federal government agency AQ: This explanation is a bit unclear, and essentially repeats the prior clause. I would write e.g. “meaning that if the stock were to drop to zero, there is no way to recoup your initial investment.” .


Focus on Companies You Know


Look for companies that you are aware of and well-acquainted with. For example, if you buy your coffee from a certain coffee chain Replaced “shop” with “chain”, as the latter is more indicative of a publicly-traded company. You could also write “coffee house” , finding more information on the company and taking a look at its organizational structure are a few good ideas to get started. While there are several ways of researching and analyzing a company, there are two in particular that are frequently utilized by investment managers: fundamental and technical analysis.


When AQ: The focus here should be on “fundamental analysis”, ye this terms appears at the end of the sentence. This paragraph may need to be rewritten so that it reads more clearly. analyzing a stock, futures contract, or currency using fundamental analysis, there are two basic approaches that can be used: bottom-up analysis and top-down analysis. When using the standard fundamental analysis to value a company, one typically looks at the company’s financial statements. These statements include the cash flow statement, balance sheet and income statement. They do this in hopes of finding a trend in terms of overall organizational performance that will predict the stock price of the company AQ: This sentence is a bit vague and may need a content-level revision. .


When performing a technical analysis, one uses real, public data in placing a value on the equity or investment they are reviewing. For stocks and equity investments, the fundamental method AQ: This paragraph should only focus on the technical analysis. uses revenues, earnings, return on equity, and profit margins. For example, an investor can perform a fundamental analysis on a bond by reviewing the bond’s interest rates as well as the state of the issuing entity AQ: What is meant by “state” here? e.g. geographical location, condition, or something else? Specify. . Additionally, it is beneficial to look at the company’s leadership team and their overall performance in leading the company. Some questions to think about are as follows AQ: As there are essentially three questions here, I would use a bulleted list to accentuate the importance of this section. : Are they making the right decisions for their employees, consumers and shareholders? How are they managing the company and what is their vision as to the growth of the company?


Look Outside the United States, You Might Find Value


As you continue to explore potential equities to invest in, don’t be afraid to look abroad. There’s an acronym that is utilized in the marketplace known as BRICS, which stands for Britain, Russia, India, China and South Africa. The term BRICS AQ: I think it’s enough to just list BRICS, as this part is a bit confusing. is also used by companies that refer to the four-named countries as key to their emerging markets strategies. From an investment perspective, there could be up-capped and untapped opportunity in BRICS AQ: unclear wording here - revise . This provides you with a way to diversify your equity holdings portfolio. Stretching AQ: This sentence is also a bit awkward and could use a rewrite. the amount of risk you have in various countries is a good way to hedge against major losses in the marketplace. Keep in mind that while these investments can be viable for your portfolio, you must continue to follow the due diligence provided above AQ: “above” is vague – be more specific here to help reinforce this message . You want to ensure that you know the company, its management, purpose and technical analytical data AQ: what is meant by this phrase? It reads more like jargon as well.


It is important to ensure that you are thorough in choosing your investments and selecting the right investment strategy. Be careful to appropriately analyze the choices of investments before you AQ: Before you what? Specify. . Do your due diligence and you will be able to find the right investments for your portfolio.


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