How to Invest Based on Your Personal Style - dummies

How to Invest Based on Your Personal Style

By Paul Mladjenovic

Your investing style isn’t a blue-jeans-versus-three-piece-suit debate. It refers to your approach to stock investing. Do you want to be conservative or aggressive? Would you rather be the tortoise or the hare? Your investment personality greatly depends on your purpose and the term over which you’re planning to invest.

Conservative investment

Conservative investing means that you put your money in something proven, tried, and true. You invest your money in safe and secure places, such as banks and government-backed securities. But how does that apply to stocks?

If you’re a conservative stock investor, you want to place your money in companies that exhibit some of the following qualities:

  • Proven performance: You want companies that have shown increasing sales and earnings year after year. You don’t demand anything spectacular — just a strong and steady performance.

  • Large market size: You want to invest in large cap companies (short for large capitalization). In other words, they should have a market value exceeding $5–$25 billion. Conservative investors surmise that bigger is safer.

  • Proven market leadership: Look for companies that are leaders in their industries.

  • Perceived staying power: You want companies with the financial clout and market position to weather uncertain market and economic conditions. What happens in the economy or who gets elected shouldn’t matter.

As a conservative investor, you don’t mind if the companies’ share prices jump (who would?), but you’re more concerned with steady growth over the long term.

Aggressive investment

Aggressive investors can plan long-term or look over only the intermediate term, but in any case, they want stocks that resemble jack rabbits — those that show the potential to break out of the pack.

If you’re an aggressive stock investor, you want to invest your money in companies that exhibit some of the following qualities:

  • Great potential: Choose companies that have superior goods, services, ideas, or ways of doing business compared to the competition.

  • Capital gains possibility: Don’t even consider dividends. If anything, you dislike dividends. You feel that the money dispensed in dividend form is better reinvested in the company. This, in turn, can spur greater growth.

  • Innovation: Find companies that have innovative technologies, ideas, or methods that make them stand apart from other companies.

Aggressive investors usually seek out small capitalization stocks, known as small caps, because they can have plenty of potential for growth. Why invest in big, stodgy companies when you can invest in smaller enterprises that may become the leaders of tomorrow? Aggressive investors have no problem buying stock in obscure businesses because they hope that such companies will become another Apple or McDonald’s.