Investing is a high-stakes game that demands preparation, reliable information, and timely action from the responsible agents. Therefore, utilizing the available data and finding the right investment analysis approach is the key to success. In order to reach our financial goals, we need to work on determining our investment strategy and best tactics.
The place of strategy in investment
Many different trends and strategies have formed throughout the history of investment and are still developing today. But to understand and choose between them, it is worthwhile to first look at what exactly a strategy is and how it relates to other key elements of such high-stakes operations as an investment.
The main difference to understand is between strategy and tactics. To put it short, in business, strategy is understood as the action plan specifying the long-term purpose, approach, and modes of action. Whereas tactics are the concrete activities and operations to achieve clear and measurable objectives that advance the general goals set by the strategy.
When we understand how this distinction works in investment, everything else falls into place. Thus, we can lay out the key elements of investment as follows.
- Strategy – the main plan for how much active involvement there should be during the investment processes. Strategy also involves setting clear goals based on our resources and capabilities and a preliminary schedule for achieving these goals.
- Tactics, which is where we decide what smaller actions, we need to take to advance our strategy and how we will go about taking them.
- Methods is all that we do to achieve the tactical objectives. In investment, this may include all sorts of investment analysis, computer modeling, machine learning, and various analytical methods.
- Tools and resources. Everything we use when applying methods and going after our objectives, including data collection tools and assets, as well as hardware and software investment analysis tools at our disposal.
Choosing the right investment strategy
Now that we have the key elements laid out, it is easy to see what an important and foundation place the investment strategy holds. The functionality of every other aspect of the procedure depends on it.
When choosing the right investment strategy, whether we are private investors or financial firms, beginners, or professionals, we look at all the other elements as well. For example, if we want to be value investors, we need to be prepared to play the long game and do a lot of preparatory research to identify undervalued stock. Thus, we have to first consider if we have the time to do that and what tools and methods, we could use to achieve it.
If we do not wish to spend our time researching the markets or do not have the adequate tools and resources for that, then we might be better of with something else. In such a case we could opt for a low-involvement strategy like buy and hold.
The same goes for any situation in which we are choosing an investment strategy. We need to consider our goals and tactical options, as well as tools and resources at our disposal.