INVESTMENT STRATEGIES | PASSIVE INVESTMENT & ACTIVE INVESTMENT STRATEGIES MCom Third sem classes

Описание: INVESTMENT STRATEGIES
• An investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio
• A well planned investment strategy is essential before making any investment decision.
• Investment strategies defined as set of rules, a definite behavior or procedure guiding an investor to choose his investment portfolio.
TYPES OF INVESTMENT STRATEGIES
1.PASSIVE STRATEGY
2. ACTIVE STRATEGY
1.PASSIVE STRATEGY
• Some investor use passive strategy to own and to Manage the portfolio or common stock.
• This strategy simply involves buying a security and holding it until its maturity.
• No active buying and selling of stocks once portfolio is created.
• Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance
• Passive investors also called fatalists of financial market.
• They don't seek to out perform the market, but simply to do like market doing
• It is useful in the efficient market
• Investor doesn't buy and sell the securities rapidly to get benefit from short term price fluctuation
• Passive investors instead rely on their belief that in the long term the investment will be profitable.
• passive investing requires good initial research, patience and a well diversified portfolio.
• Buy-and-Hold strategy is a passive strategy
BUY-AND-HOLD STRATEGY
• It mean that investor simply buy a stock and hold it till maturity to meet some objectives
• Investor aims to avoid repetition of transaction costs, additional search costs etc
• If a security is satisfactory, they keep them, otherwise they sold or replace with other securities (incur transaction costs)
• It is applicable for all type of small and large portfolios
INDEXING STRATEGIES
• Commonly followed passive strategy.
• With this strategy, the manager does not attempt to identify undervalued or Overvalued stock issues based on fundamental security analysis. Nor does the manager attempt to forecast general movements in the stock market.
• An indexing strategy involves designing a portfolio to track the total return performance of a benchmark index.
• Indexing involves attempting to build a portfolio that will match the performance of a selected bond portfolio index.
• Using Indexing strategy the invastor forms such a portfolio which is identical to the well diversified market index.
• Indexing is a passive strategy assuming that securities are priced fairly.
• Investors can select securities randomly from the universe of securities, or, he may choose the stratified approach segmenting the index into components from which individual securities are chosen.
• Each of the broad indexes contains thousands of individual securities. The market indices are continually rebalanced as newly issued securities are added to the index and existing securities are dropped from the index as their maturity
falls below the year.
• Indexing typically uses a stratified sampling approach.
》 The security market is stratified into several subcategories based on maturity, industry or credit quality.
》 For every subcategory the percentage of securities included in the market index that fall in that subcategory is computed.
》 The investor then construct a portfolio with the similar distribution across the subcategories.

ACTIVE STRATEGY
• It's continues and ongoing process of buying and selling of securities
• The investor assume that the rapid buying and selling of securities are beneficial than holding it.
• It take benefit from small fluctuation of change in prices in the stocks
• Investor continually monitor their portfolio, and highly involved
• Will see their prices many times a day
• Focus on short term profit