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Chapter 4
An Overview of Different Strategies
You cannot have a steady stream of income by investing in stocks unless you
have a reliable strategy. You are also not limited to using a single strategy. You
can combine the following strategies, modify them, or even come up with your
own. The important thing is that you use a strategy to turn the odds in your
favor.
Fundamental Analysis
Anyone who has invested in stocks or any business has probably encountered
this strategy. This is one of the most common and effective strategies that you
can use. Fundamental analysis focuses on the fundamentals of the company
concerned. After all, the performance of stocks in the market primarily depends
on the performance of the business. Hence, this strategy involves examining the
cash flow and financial statements of companies. To a certain degree, this
strategy also takes into consideration the quality of the company. However, the
main focus of this strategy lies in the numbers. When you use this strategy, your
objective should not be merely to earn from the capital gains but to receive all
the benefits of owning a prosperous company.
Technical Analysis
If you are not fond of numbers and would rather deal with something more
visual, such as graphs and charts, then you might like technical analysis. This
strategy deals with analyzing graphs and charts which show how the prices of
stocks fluctuate within a given time period. It is believed that the many factors
that affect the performance of stocks have their accumulated effect on the price.
Therefore, by understanding the changes in price alone, you can understand the
market without having to bother yourself with too much data. This is also a
recommended strategy for short-term investing.
When you use this strategy, the key is to look for a pattern or trend. You should
then take advantage of this pattern. Take note, however, that patterns come and

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go. In fact, there are times when you may not be able to see any pattern at all. A
common mistake committed by many investors is that they force a pattern. They
create a pattern in their mind even when none actually exists. This is, of course,
a grave mistake. You need to keep an open mind. If there is no pattern to be
seen, then wait it out until a more promising situation arises. Do not look for a
pattern if it is not there.
Value Investing
This strategy is about investing in a company that is currently trading below its
true value. For example, if the actual price of the stocks of Company A is $25
per stock but the stock market exchange only shows that its stocks are only
worth $15, then it must be a profitable investment. The key here is to be able to
find the wrong valuation and take advantage of it.
When you use this strategy, you need to look for stocks that have strong
fundamentals. Find stocks that have a high quality but are being sold at a
bargain. The theory here is that the market will soon correct itself. Therefore, if
the correct value of a stock is $25, but it is only priced at $15, then its current
price will soon increase.
Take note that when you use this strategy, you do not just look for stocks that are
selling at a low price. To be considered a good bargain, the stock must have a
good quality but is selling at a low price. Therefore, if the stocks of Company A
used to sell at $23 per stock, but then they now drop to $14 per stock, it does not
mean that they are good stocks to invest in. In fact, such drop in price signifies a
serious problem in the company.