Dave Deruytter takes a look at the financial markets’ investment strategies from growth picking to bottom fishing. There are many ways to try to outperform the market indices of the financial markets. Still, common wisdom states that one cannot beat the market consistently over a longer period of time.
Looking for growth stocks, searching for companies with potential, or that are operating in fast growing industries or activities worldwide, are well-known investment strategies. Investment company Berkshire Hathaway, with its paramount leader Warren Buffett, is very famous for this approach. It uses a process whereby companies are followed, studied and scrutinized for their good management, good products or services, and for their potential – and, that are undervalued by the financial market because those elements are (still) unknown.
It can be as simple as buying a good local company with great products and an important pipeline, that has easy potential to scale the business outside its home market, but has not yet done so. All of this requires a lot of study of course. That is why quite a few people buy the shares of Berkshire Hathaway, or their competitors, instead of venturing themselves in such detailed, and sometimes complex, analyses for stock picking.
Other growth-picking investment strategies bank on the investment in the future new Google or Facebook companies. In the process they buy a lot of shares in potential candidate companies, only slowly but surely, whilst studying each of them in detail, adding money only to those that keep on increasing their chances of winning in the quest for stardom. Often this strategy is only successful if you can buy those shares before the company is actually listed on a Stock Exchange.
Although with the likes of Google or Facebook this was not necessary; even after the IPO their share-price multiplied over a short period of time. Private equity companies are very active in this field of scanning for future winners – big time. Also, large conglomerates that look at optimizing their product offer, the countries in which they operate, or that are searching for synergies or advantages of scale in takeovers, are very actively searching the market for potential scale-ups or partners.