Prof. Tyler yamazaki

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.

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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 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.