Active investors differentiate among two major classes, according to their approach to investing. Securities can be seen as an opportunity to gain money easly, or as a tool to efficiently save money for latter usage.
The investors belonging to the former class strive to find opportunities to get rich easly. The principle seems trivial: stock markets has its "ups" and "downs", and it suffices to buy stocks in low prices and sell them when the prices get high. However, this raises two questions hard to answer. First is to quantify "low" and "high" prices. One can resort to historical data in order to do that. However, stock quotes evolution seems so erratic that it is almost impossible to find patterns of behaviour that work as well as with the past as with the future. And a second question is which specific securities provide better chances to grow to high prices, and for how long.
Speculators believe that they can profit by taking advantage of stocks that the market as whole has priced incorrectly.
A different perspective is taken by a second class of investors. How can anyone buy a product without knowing what it does? The same question applies to investments. It is crazy to trade securities without sound knowledge of what one is trading. Decisions about buying and selling securities shall not be taken without a cold and unpassionate analysis of its consequences.
This investor usually follows the basic of investing such as asset allocation, Dollar Cost Averaging and Re balancing among other investing strategies. The investor follows a set process to identify his/her financial needs and goals followed by formulation of asset allocation, dollar cost Averaging & Re balancing intervals. Once the plan is laid out, it time for implementation which requires a strictly maintained disciple (which can be improved on) to buy and sell, irrespective of single stocks or Mutual funds. The process does not stop here, the investor usually review the process to meet the financial needs & goals at least semi-annually to check if the process is working and to fine tune the process to better the results.
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