investing stocks, 10 strategies
On the stock market, there are different financial instruments used as the objects for investments - shares, bonds, promissory notes, etc. The greatest interest is, of course, shares and derivative financial instruments (futures and options. Playing on the stock market, you can ensure that the level of profitability significantly higher than in other segments of the securities market.
Of course, like any other financial instrument, the shares have their strengths and weaknesses as an object of investment. The main lack of investment shares, as well as derivative financial instruments - in the fact, that this tool (in contrast to, for example, from bonds) does not have a guaranteed income. Capital gains for the owners of the shares are either due to the receipt of dividends, or for the account of changes in the market value of the shares. The yield on dividends in the contemporary Russian practice, rarely exceeds the inflation, so in the nearest future the main source of income for the investors will remain a change in the market value of the shares.
Depending on the purposes of investment, type of management, the nature of the economic situation, and many other factors can be identified a large number of various strategies.
The strategy of efficient owners.
If you use this strategy mission of the investor is not only in obtaining access to certain types of products and ensuring control over financial flows, but also in enhancing the scientific and technical and supply capabilities, financial rehabilitation of the company-Issuer. The main income of the investor, has a long-term nature and is formed in the result of economic activity of the enterprise. Respectively for the implementation of this strategy, significant resources are needed not only on the acquisition of a controlling interest, but also for the development of the Issuer. In later stages, and the owner may exercise the "promotion" of shares of the controlled company, including on international markets. Finally, after the company has become a highly profitable, and its share significantly increased in price, the investor using this strategy may earn a profit from the sale of their package. Abroad this strategy is used by venture capital funds, funding the development of innovative business.
As the preconditions of use of this strategy it is necessary to note not only the availability of significant financial resources and experience, communication, and knowledge of the technology of production, markets and other characteristics of the controlled entity.
The strategy of speculative mergers or acquisitions.
The main mission of this strategy is the acquisition of a controlling stake for access to scarce kinds of products (services), financial resources, or in order to obtain at the disposal of profitable objects of the real estate, other property and non-property rights. The application of this strategy in relation to large enterprises to switch the significant financial flows to its subsidiary brokerage companies, offshore companies, banks. Investors using this strategy can make a profit when the implementation of a package of shares to the end investor, or for the account management of the cash flows of the company. The purpose of the application of this strategy in relation to small enterprises can be in the acquisition of a favourable space in prestigious areas for use as offices, warehouses, for the erection of new buildings.
Thus, the main distinctive feature of this strategy is not the development of enterprises, and access to property and non-property rights. As the preconditions of the strategy can be considered an accessory of the investor to the financial-industrial group (Fig), banking or trade-intermediary structures, possessing the necessary resources to buy control packet of shares. This strategy can be used, as a rule, at the initial stage of privatization, when the company only starts to struggle for redistribution of property.
In a portfolio investment, the choice of strategy is largely determined by the type of management. There are generally 2 types of control: passive and active. Passive management is characteristic of conservative and moderately-aggressive investors. As main objectives in passive management act investment protection from inflation and receive a guaranteed income at a low risk and low cost to management. This type of control involves the creation of a well-diversified portfolios of securities, for which it is possible to accurately calculate the yield, risk and liquidity. The passive type of control is based on the fact that the configuration of the portfolio over a long period of time is not reset. This allows the implementation of a strong advantage of the passive control -- a low level of administrative costs.
Active management involves careful monitoring of the market, the rapid acquisition of financial instruments that meet the goals of investment, as well as the rapid change in the structure of the portfolio. The main feature of active type of control is in the desire of the investor to beat the market and get a yield exceeding the average market.
This type of control requires significant expenses, connected with informational and analytical preparation of such decisions, the acquisition or development of their own software and technical and methodical support. Significant expenses, characteristic for the active type of control, caused by the necessity to ensure the trading activity and access to the systems of the exchange and over-the-counter trading, high transaction costs, the creation of a network to buy the shares, etc. This type of control can be selected only participants who have sufficient equity capital, highly qualified personnel, as well as significant management experience as the own portfolio of securities, and the trust management of the portfolio of clients.
Let us consider some examples of portfolio strategies. The most common strategy of passive management in case of investments in corporate shares is the strategy of "buy - and - hold." It should be borne in mind that the effectiveness of this strategy largely depends on the level of undervaluation of shares and the selected period of time. It is obvious, that the bear market rally virtually any other strategy will provide gains compared with the strategy of "buy - and - hold." The greatest safety and profitability of using the strategy of "buy - and - hold" is achieved with the long term investment.
As another type of strategy of passive management is the strategy of the index Fund. It is based on the fact that the structure of the portfolio should reflect the movement of the selected stock index, which characterizes the state of the entire securities market (or its most important segments). Types of securities and their share are determined in the same manner as when calculating the index. The main task of the investor becomes a play in its portfolio of market structure with periodic his correction after a half-year. The control is provided by the deviation of the portfolio from the index structure.
When using this strategy, real income, as a rule, are provided in terms of investments not less than a year. The main profit is formed as a result of growth of the market value of the most undervalued shares. For example, the growth of the stock index Russia: CS First Boston ROS 30 in 1996 amounted to about 127%. The growth in the prices of shares of Russian companies included in the calculation of global indices of the International Finance Corporation (IFC Global Indices) in 1997 amounted to 148,9 % per annum. In terms of the prevalence at the national market of corporate shares of foreign investors the direction of the game many operators is determined not only by the indices, characterizing the domestic market, but also the dynamics of the Dow Jones.
Lack of strategy index Fund for domestic investors is the complexity of the choice of the index. In Russia at the present time is calculated more than 40 indices, the method of their determination and the list of companies, whose shares are included in the index, are significantly different. Accordingly one of the problems lies in the choice of index, adequately reflecting the behavior of the market or its segments. In Russian conditions the use of the strategy of index Fund is also complicated by the fact that the market of corporate shares unstable even for "blue chips". Even if you use indexes, in which are represented the largest and most reliable issuers, for a conservative investor, the portfolio remains quite risky. It should also be noted that the Russian market of corporate shares are very dynamic, and the update of the portfolio of one-two time a year is unlikely to be acceptable. Accordingly is not implemented one of the main advantages of the strategy is to lower the costs associated with the management of the portfolio. In our opinion, the peculiarities of the domestic market make strategy index Fund, the method rather active, rather than passive management.
More promising, in our view, are active strategy of portfolio investment. Allocation of these strategies can be carried out on the various classifications. Classification makes it possible to identify the most complete range of strategies, and thereby expands the range of operations of the organization in the context of the dynamic of the stock market. An opportunity to make a list of the standard strategies for the use of a specific company in those or other situations in the future. Due to the limited size of the article below is not a complete list of strategies, and their description is given in a compressed form.
The specificity of the activity of the investor is that the stock market participants have access, and choose its various segments: the RTS stock exchange, the retail market (buying of shares of the population), large-scale wholesale market (for example, the acquisition of shares in the process of privatization), other sectors of the over-the-counter market. Depending on the focus on a particular segment of the market is possible to allocate the following kinds of strategies: the auction, the speculative contestant, arbitration, "vacuum".
Auction strategy
apply for the acquisition of the shares at the time of their original purchase of the cheque, cash, auctions, held in the privatization process. Varieties of these strategies are determined by the conditions of carrying out of auctions. Especially well considered strategy applied in the early stages of privatization. With the right choice of investment objects purchased at auction shares provided yield due to the growth of the market value of the hundreds and thousands of per cent per annum. The final auction price in most cases was significantly lower than the market. This rule was confirmed in the course of the recent privatization of oil company "KomiTEK", "Slavneft", VNK at special cash auctions, when the price of the auction was 20--50% below the quotations of AK&M. Thus, the main advantage of this strategy is that it is quite cheap to buy shares "of unknown" enterprises, which are not in demand in the market. Risk, characteristic for this strategy lies in the fact that as a result of the overwhelming demand for the most "tasty" pieces of state property, auction price may be too high. Another danger may consist in the fact that the investor, wishing to insure against growth of prices, not divine price, accordingly he will not be able to purchase the shares, and the invested funds will be frozen for one and a half-two months. Investor's expectations, associated with the growth rate value in the result of the struggle for control over the enterprise, may not be justified, if one of the participants in the course of the auction buy a controlling package (it is such a situation developed after the results of the auction for the WPC). Finally, in domestic conditions there is always a possibility that for some reasons the terms of the auctions will be postponed for an indefinite time (TNK) or their results will be declared void.
Strategy speculative contestant
the most commonly used investment tenders and closed cash auctions conducted by the process of privatization. It lies in the fact that the interests of the investor are several firms that seek to specify in applications such prices to enter the two winners. On the one hand, this allows you to insure the case of the misuse of the application or non-participation of other investors. On the other hand, if the interests of one investor protect several affiliated companies, the more chances to "guess" the price. At successful coincidence of circumstances one of the companies representing the interests of the speculative contestant, occupies the first place and refusing his application, and the winner is recognized as another of his representative, who took the second place. This allows you to get the profit from the resale of the shares to the end-investor, who does not "guess" price. One of the preconditions for the successful realization of this strategy on investment contests are close links with the major banks and the possibility of establishing contacts with the organizers of the sales and management of the enterprise. The main risks of this strategy is connected with the fact that in case of rejection of the application (the signing of the Protocol, the conclusion of the contract) the Deposit is not refunded, therefore, if the parties cannot agree, the speculator suffers losses. In addition, if the price or discounted volumes of investments, specified in the application, have been determined correctly and became the winner of the other party, means of speculative contestant been "frozen" for a significant period of time. In present in connection with the tightening of the conditions of conducting of auctions, competitions and the strengthening of control over their observance of the implementation of this strategy is significantly aggravated by or becomes impossible.
Arbitration strategy
been actively used during the initial stage of privatization (sale of vouchers), and at the present time. It is to use the fact that one and the same asset may have a different price for the two different, including geographically remote, markets. The investor applying the strategy (arbitration), profiting at the expense of virtually simultaneous purchase and sale of the same securities on the various stock exchanges. The strategy allows you to make a profit with minimum risk and at the high speed of the implementation of the settlement and does not require significant investments.
Arbitrage operations actively used by large companies, which in the period of the recent financial crisis bought shares of Russian issuers on the Western market and sold on the domestic. The price difference due to a strong drop in the Western markets sometimes reached 8--10%.
Finally, this strategy is most often used domestic participants of the stock market by buying shares in the regions and the sale of larger packages in Moscow. Due to the fact that buying and selling, sometimes considerably spaced in time, the main advantages of pure arbitrage strategies (low risk and investing for the short time) in this case negated. Nevertheless, because of the availability of objective buffer, caused by the difference between the price of purchase of small and sale of large packets, the risk associated with the implementation of this strategy is quite low.
The strategy of "vacuum cleaner"
applies the most large investment companies, which are on the order of (mostly foreign) investors are the mass purchase of shares in the regions. The power of the "charge" and the speed of the overflowing of the funds and securities are determined by the objectives of the final investor, the volume of financial funds, level of organization of the process of buying and other features. One of the main problems lies in the fact that the increase in demand and consolidation of large blocks of not led to significant growth in prices.
If the system forming factor in the classification of the portfolio of strategies to choose the method of forming the portfolio, examples of such strategies, as an optimization, ranking, flexible response, market advance.
Optimization strategy
based on the construction of the economic-mathematical models of the portfolio. Selection of best portfolio structure is carried out by varying the optimization criteria and conducting multivariate model simulations. Use of methods of optimization allows to determine the configuration of the portfolio, most precisely tailored to individual requirements of the investor from the point of view of a balanced combination of risk, profitability and liquidity of investments. As classic examples usually given optimization models Марковитца, Sharpe, Tobin. One of the problems lies in the fact that the process of selecting the investment strategy is not always possible adequately to formalize, sometimes more essential, not quantitative, but qualitative indicators. Therefore, in the present, in addition to the traditional methods of optimization (for example, linear or dynamic programming) managers and analysts use the methods based on genetic algorithms, fuzzy logic and expert systems, neural networks.
Rating strategy
is that the formulation and updating of the portfolio of securities is carried out on the basis of the result of the building of the rating table. Calculation of rating is carried out by groups of indicators, characterizing the main investment preferences of the participant. The portfolio includes shares of companies that have the best rating. Accordingly paper, occupying the lower lines in the rating, are excluded from the portfolio. Depending on the investment purposes can be used as a summary rating and private ratings, which reflect the most important, from the point of view of the investor, the characteristics. For example, for a conservative or moderately-aggressive investor in the first stage are excluded from the portfolio of securities, having the worst rating from the point of view of liquidity. At the next stage of the portfolio may be the most profitable of liquid securities or shares, having the highest rating's growth prospects.
The advantage of this strategy is that it allows you to manage a portfolio taking into account the main purposes of investment. Disadvantages are connected with necessity to fulfil the great volume of information-analytical work carried out mainly by the investor, as in the domestic infrastructure of the stock market of the rating agencies are practically absent. In addition, the use of a rating of strategy can only define a list of securities that must be present or be derived from the portfolio. While it remains an open question, in what proportions distribute the volumes of investments between the individual papers. Finally, the rating calculations are carried out not more often than every 3 to 4 months, so the application of this strategy as the principal may only be recommended for the management of medium - and long-term portfolios.
The strategy of "flexible response"
is that a professional participant, getting the market signals, showing the interest of large foreign or domestic investors to shares of any Issuer, use its possibilities to get ahead of competitors and in advance to start the massive purchase of the small investors.
This strategy quite often choose to regional firms, which due to the close connections with the center are additional advantages in the local market. Prompt response to the market's interest of major participants allows these companies to quickly mobilize resources and purchase large packages of shares, increases the likelihood of a "guaranteed" sales. The disadvantages of this strategy lies in the fact that using it organization does not generate demand, and promptly monitoring the situation. She is forced to follow the leader, which dictates its own conditions and removes the cream".
The strategy of "market leadership"
assumes that the investor tries to yourself to make the forecast of the state of the market and use it for profit. This strategy can be used as the bear, and on the bull market rally. In the first case the company determines the most promising shares, which in the near future should use the market demand. Having identified a set of such shares, the company gradually, not "bullying" of prices, shall exercise their purchase on the exchange and OTC trades. The investor using this strategy, takes an active part in the formation of demand and "promotion" of the shares. By the time, when the other participants to enter the market and there is a high demand, he manages to acquire a rather large package, and, to some extent, can dictate its conditions to the final investors.
In the second case, the company that adopts a strategy of "market leadership", foreseeing a fall in the market manages to sell the shares at a higher price. Thus, the main advantage of this strategy lies in the fact, that due to the advance of the competitors of the company can buy up large volumes of securities at a low price or to sell them at a price close to the maximum. The disadvantages of this strategy associated with high risk and low return of investment funds and possible losses, if the forecast was wrong.
Preconditions for a successful implementation of this strategy is not only in the availability of financial resources and a well-developed network to buy the shares, but also in the ability of the implementation of the highly professional analytical preparation of this process. The analytical service of the company, which has chosen the strategy should conduct permanent monitoring of the market, use methods of fundamental and technical analysis to select the most promising shares before them show interest to other participants, including market leaders.
One of the main features of the Russian market of corporate shares is that it is a growing market (emerging market), so it applies strategies characteristic of the transition process. As analogues may be innovative strategies associated with the directions of scientific-technical development and access to new markets: an active and moderately offensive, defensive (residual), intermediate (borrowing). For example, the strategy of borrowing in a simplified form can be characterized by the thesis of "Invest where invests Soros". She suggests that the professional securities market participants are sitting on the fence. The purchase of shares (for example, the population begins not on the basis of self-selection, and due to the detection of demand from the other (first of all the large investors. For example, if 30--50% or more of the major participants are starting to buy one and the same paper, for firms, using this strategy, it is one of the main signals for similar actions.
Depending on the terms of return of the invested capital can be distinguished strategy of short-term, medium-term and long-term investments, as well as their combinations. For the domestic market of corporate shares as a short-term period of investment is usually a period of several hours to 3--6 months. Medium-term investment assumes the possibility of a return of the invested funds through 6--12 months, and long-term " after a year and more. Strategy short term investment can be described as a strategy of "catching-term fluctuations". It comes from the fact that stock prices are subject to frequent change, which are not always adequate to real changes in the Affairs of the companies-issuers. Therefore, on the market there are always securities of a consistently high or low prices. Some participants of the stock market are trying to take advantage of such a situation and "fix" the short-term profit.
Companies using this strategy, trying to earn a profit from fluctuations of the exchange rate of shares, of what is happening over the course of weeks, months, and during one trading session. In the basis of their activity is the development of short-term macro - and micro-economic forecasts, use of methods of technical analysis. The basis of the portfolio consists of shares of "blue chips", because on them there is a sufficiently representative sample of input data for forecasting dynamics of the exchange rate. On the other hand, these shares are liquid enough, which allows you to flexibly carry out перевложения of some of the securities in the others. The inclusion in the portfolio of illiquid securities may make a quick withdrawal impossible, that negates the advantages of this strategy. When using short-term investment strategy should take into account even small market movements in equity prices and cause their events. For example, the expectation of appreciation in connection with the termination of the work on the issue of ADR, the possible decrease in quotations when increasing the Charter capital as a result of the announcement of an open subscription for shares, the wobble of the international stock indices, etc.
A variant of this strategy is the strategy of "скалпирования", which is most often applied in the exchange trade and consists in carrying out of transactions on one and the same Issuer during one trading session. With one of the tasks is to ensure guarantees of the transactions. As the other preconditions of the successful use of this strategy is the high speed of settlements.
Management of a portfolio on the basis of the short-term strategy is based on the use of even small exchange rate fluctuations, therefore, profit maximization is possible at very high speeds. Accordingly, in case of choosing the securities should be aware that significant volumes of transactions should not have a significant impact on the change of their quotations. The main danger of this strategy are associated with the risk of non-fulfillment of transactions, errors in the prediction of the course, as well as the impossibility of a rapid withdrawal of funds in especially large speculation. The risk of use of the strategy, based on short-term fluctuations, particularly, when the sale of securities is carried out without coating (short sale).
In the formulation and selection of strategies you can use the other classifications. For example, if the basis of classification taken receive income abroad traditionally-based strategies: growth capital; the receipt of regular current income; a combination of capital growth and current income. To the same group can be attributed strategies associated with the manipulation of the yield curve.
If as a classification of the feature in the allocation strategies to use the possibility of reducing the risk of investment, the for achieving this goal can be selected strategy of diversification, concentration, immunization and hedging. These strategies are described in detail in the literature.
In conclusion, we note that, in order to satisfy the needs of different investors, the range of investment strategies should be broad enough. The classification, despite of the Convention, helps to highlight some of the model strategies, on the basis of the combination of which can be developed strategic action programme of the professional participants depending on the situation on the stock market and scenarios of its changes. In practice one and the same investor in relation to the various types of securities may use a variety of субстратегии, as well as their combinations. In addition to the model strategies, for each investor may be developed by individual strategy, the most accurately reflecting specificity of its objectives.
