Editing Investment (section)

==Investment strategies==

=== Value investing ===
{{main|Value investing}}
A value investor buys assets that they believe to be undervalued (and sells overvalued ones). To identify undervalued securities, a value investor uses analysis of the financial reports of the issuer to evaluate the security. Value investors employ accounting ratios, such as [[earnings per share]] and sales growth, to identify securities trading at prices below their worth.

[[Warren Buffett]] and [[Benjamin Graham]] are notable examples of value investors. Graham and [[David Dodd|Dodd's]] seminal work, [[Security Analysis (book)|''Security Analysis'']], was written in the wake of the [[Wall Street Crash of 1929]].<ref>{{Cite book|title=Security Analysis: The Classic 1940 Edition|last1=Graham|first1=Benjamin|last2=Dodd|first2=David|date=2002-10-31|publisher=McGraw-Hill Education|isbn=978-0-07-141228-5|edition=2|location=New York; London|language=en}}</ref>

The [[price to earnings ratio]] (P/E), or earnings multiple, is a particularly significant and recognized fundamental ratio, with a function of dividing the share price of the stock, by its earnings per share. This will provide the value representing the sum investors are prepared to expend for each dollar of company earnings. This ratio is an important aspect, due to its capacity as measurement for the comparison of valuations of various companies. A stock with a lower P/E ratio will cost less per share than one with a higher P/E, taking into account the same level of [[financial]] performance; therefore, it essentially means a low P/E is the preferred option.<ref>{{cite web|title=Price-Earnings Ratio - P/E Ratio|url=http://www.investopedia.com/terms/p/price-earningsratio.asp|website=Investopedia}}</ref>

An instance in which the price to earnings ratio has a lesser significance is when companies in different industries are compared. For example, although it is reasonable for a telecommunications stock to show a P/E in the low teens, in the case of hi-tech stock, a P/E in the 40s range is not unusual. When making comparisons, the P/E ratio can give you a refined view of a particular stock valuation.

For investors paying for each dollar of a company's earnings, the P/E ratio is a significant indicator, but the [[price-to-book ratio]] (P/B) is also a reliable indication of how much investors are willing to spend on each dollar of company assets. In the process of the P/B ratio, the share price of a stock is divided by its net assets; any intangibles, such as goodwill, are not taken into account. It is a crucial factor of the price-to-book ratio, due to it indicating the actual payment for tangible assets and not the more difficult valuation of intangibles. Accordingly, the P/B could be considered a comparatively conservative metric.

=== Growth investing ===
[[Growth investing|Growth investors]] seek investments they believe are likely to have higher earnings or greater value in the future. To identify such [[stock]]s, growth investors often evaluate measures of current stock value as well as predictions of future financial performance.<ref name=":1">{{Cite web |title=Is Growth Investing the Right Money-Making Method for You? |url=https://www.investopedia.com/terms/g/growthinvesting.asp |access-date=2022-10-05 |website=Investopedia |language=en}}</ref> Growth investors seek profits through [[capital appreciation]] – the gains earned when a stock is sold at a higher price than what it was purchased for. The [[Price–earnings ratio|price-to-earnings (P/E)]] multiple is also used for this type of investment; growth stock are likely to have a P/E higher than others in its industry.<ref>{{Cite web |last=Chandler |first=Simon |title=A growth stock is a company expected to rise faster than the overall market, offering bigger gains for investors who don't mind risk |url=https://www.businessinsider.com/personal-finance/what-is-a-growth-stock |access-date=2022-10-05 |website=Business Insider |language=en-US}}</ref> According to Investopedia author Troy Segal and U.S. Department of State Fulbright fintech research awardee Julius Mansa, growth investing is best suited for investors who prefer relatively shorter investment horizons, higher risks, and are not seeking immediate cash flow through dividends.<ref name=":1" />

Some investors attribute the introduction of the growth investing strategy to investment banker Thomas Rowe Price Jr., who tested and popularized the method in 1950 by introducing his [[mutual fund]], the T. Rowe Price Growth Stock Fund. Price asserted that investors could reap high returns by "investing in companies that are well-managed in fertile fields."<ref>{{Cite journal |last1=Chan |first1=Louis K.C. |last2=Lakonishok |first2=Josef |date=January 2004 |title=Value and Growth Investing: Review and Update |url=https://www.tandfonline.com/doi/full/10.2469/faj.v60.n1.2593 |journal=Financial Analysts Journal |language=en |volume=60 |issue=1 |pages=71–86 |doi=10.2469/faj.v60.n1.2593 |s2cid=5666307 |issn=0015-198X}}</ref>

A new form of investing that seems to have caught the attention of investors is Venture Capital. Venture Capital is independently managed dedicated pools of capital that focus on equity or equity-linked investments in privately held, high growth companies.<ref>{{Cite journal |last1=Avnimelech |first1=Gil |last2=Teubal |first2=Morris |date=2006-12-01 |title=Creating venture capital industries that co-evolve with high tech: Insights from an extended industry life cycle perspective of the Israeli experience |url=https://www.sciencedirect.com/science/article/pii/S004873330600151X |journal=Research Policy |series=Triple helix Indicators of Knowledge-Based Innovation Systems |language=en |volume=35 |issue=10 |pages=1477–1498 |doi=10.1016/j.respol.2006.09.017 |issn=0048-7333}}</ref>

=== Momentum investing ===
Momentum investors generally seek to buy stocks that are currently experiencing a short-term uptrend, and they usually sell them once this momentum starts to decrease. Stocks or [[Security (finance)|securities]] purchased for momentum investing are often characterized by demonstrating consistently high returns for the past three to twelve months.<ref>{{Cite web |title=Momentum Investing |url=https://www.thebalancemoney.com/what-is-momentum-investing-4587982 |access-date=2022-10-05 |website=The Balance |language=en}}</ref> However, in a [[Bear Market|bear market]], momentum investing also involves short-selling securities of stocks that are experiencing a downward trend, because it is believed that these stocks will continue to decrease in value. Essentially, momentum investing generally relies on the principle that a consistently up-trending stock will continue to grow, while a consistently down-trending stock will continue to fall.

Economists and financial analysts have not reached a consensus on the effectiveness of using the momentum investing strategy. Rather than evaluating a company's operational performance, momentum investors instead utilize trend lines, moving averages, and the [[Average directional movement index|Average Directional Index (ADX)]] to determine the existence and strength of trends.<ref name=":02">{{Cite web |title=Investment Strategies to Learn Before Trading |url=https://www.investopedia.com/investing/investing-strategies/ |access-date=2022-10-05 |website=Investopedia |language=en}}</ref>

=== Dollar cost averaging ===
[[File:WikiGraphic.PNG|thumb|Dollar cost averaging: If an individual invested $500 per month into the stock market for 40 years at a 10% annual return rate, they would have an ending balance of over $2.5 million.]]

[[Dollar cost averaging]] (DCA), also known in the UK as pound-cost averaging, is the process of consistently investing a certain amount of money across regular increments of time, and the method can be used in conjunction with value investing, growth investing, momentum investing, or other strategies. For example, an investor who practices dollar-cost averaging could choose to invest $200 a month for the next 3 years, regardless of the share price of their preferred stock(s), [[mutual fund]]s, or [[exchange-traded fund]]s.

Many investors believe that dollar-cost averaging helps minimize short-term volatility by spreading risk out across time intervals and avoiding market timing.<ref name=":02"/> Research also shows that DCA can help reduce the total average cost per share in an investment because the method enables the purchase of more shares when their price is lower, and less shares when the price is higher.<ref name=":02" /> However, dollar-cost averaging is also generally characterized by more brokerage fees, which could decrease an investor's overall returns.

The term "dollar-cost averaging" is believed to have first been coined in 1949 by economist and author Benjamin Graham in his book, ''[[The Intelligent Investor]].'' Graham asserted that investors that use DCA are "likely to end up with a satisfactory overall price for all [their] holdings."<ref>{{Cite book |author=Graham, Benjamin |title=The intelligent investor: a book of practical counsel |date=2003 |publisher=HarperBusiness Essentials |oclc=1035152456}}</ref>

=== Micro-investing ===
[[Micro-investing]] is a type of investment strategy that is designed to make investing regular, accessible and affordable, especially for those who may not have a lot of money to invest or who are new to investing.<ref>{{Cite web |title=The Innovators – Meet the 65 Companies and Their Owners Who Have Conjured Up the Latest Wave of Products, Services, and Technologies |date=May 1, 2001 |url=https://money.cnn.com/magazines/fsb/fsb_archive/2001/05/01/302520/ |access-date=2023-04-20 |website=money.cnn.com}}</ref><ref>{{Cite web |first=Aaron |last=Lucchetti |title=E-Tailers Allow Buyers to Add Fund Investments to Carts |url=https://www.wsj.com/articles/SB945730607441550739 |access-date=2023-04-20 |website=WSJ |language=en-US}}</ref>