Established companies
Here investors invest in companies that have been on the market for ages and are established players or market leaders in their industry. In the German market, for example, these are the big players in the DAX30 such as BASF, Bayer or Siemens. Investing in these shares is usually associated with low risk in the long term and is therefore very interesting for more conservative investors in particular. However, the expected returns on these stocks are often not quite as high as can be the case with value stocks. On the other hand, dividend payments are often higher here, which in turn has a positive effect on the subsequent return of the stock investment.
Value Shares Strategy
Value stocks are stocks that promise a good development, but are currently (also in view of the valuation of competitors) in the opinion of the investor still undervalued. Here the trader speculates on the fact that the market has not yet recognized the true value of the company and the recognition of the value of the company will still follow. The chances of return with value stocks are usually good, but the risk is also higher than with the established companies such as BASF or BMW. Here you have to ask yourself which items or services you think will be in greater demand in the future and then analyze companies that are already active in this market.
Market Growth Strategy
Here the investor looks less at the analysis of individual companies, but rather at the current and future development of entire industries. When the investor has found an industry whose future he considers promising based on current conditions, he looks around for companies that have already positioned themselves well in this segment. Anyone who recognized the market for smartphones or consumer electronics in general as a future development market at the time probably ended up with shares in Apple or Samsung, among others. Looking at the development over the past 10 years, buying these shares would certainly not have been the worst investment.
Diversification as an important factor
Limiting risk is also one of the most important imperatives when trading stocks. Here especially beginners often make mistakes in stock trading. According to a study of the UNI Bochum, approximately half of all depots led with German banks and brokers consist on the average of one to four shares. With some depots funds come possibly in addition, these contain however also often shares, which already lie in such a way in the depot. A good risk diversification looks different.
Most successful stock traders put their money therefore not only in the shares of a company, or an industry. They invest their capital with https://exness-ar.com/tnzyl-exness/ in several different stocks from different industries to reduce the risk in case of, for example, a slump or a crash of an entire industry in the portfolio. In addition, you usually mix value stocks (i.e. stocks that are still undervalued from the investor's point of view) with the stocks of established companies or market leaders in their segment in order to spread the risk even further.
However, you don't have to overdo it either. You do not need to buy 20 or more stocks here to spread your risk as much as possible. We recommend to put 7 - 10 different stocks in your portfolio for a good risk distribution. The correlation as described above is crucial. If the shares are too similar, or if they all come more or less from one sector, such as the automotive industry or suppliers, the portfolio can of course be subject to strong fluctuations if there are industry-wide problems. In this case, it is also possible to take some international shares in order to better distribute the risk.
In this way, the possible losses of one stock or industry can be absorbed with the profits from other stocks. However, for those who do not have enough capital to buy so many different stocks, mutual funds may be more suitable from a risk distribution perspective. Here, several stock titles are included, which is of course good for risk diversification.