VARIOUS APPROACHES OF INVESTMENT STYLE STRATEGY IN STOCK MARKET

Success in investing in the stock market not only focuses on individual stock selection but also involves investment strategy (Investment Style) more broadly. Investment strategy is a technique for selecting multiple individual stocks and combining them to form in a stock portfolio. Each Fund Manager may have the same goal in establishing a portfolio that is to obtain an optimal rate of return with measurable risk. But in reality the stock / securities portfolio of each Fund Manager will be different from each other. This difference is caused because each Fund Manager adopts different selection criteria tailored to the investment strategy of each Fund Manager. Broadly speaking the investment strategy is divided into two approaches: active and passive.

PASSIVE STRATEGY APPROACH

One of the passive strategies in stock investment strategy is index fund approach where this strategy is by buying all / most of stocks listed in an index eg IHSG, LQ 45 index, Sri Kehati index. This is done by reference to the weight of each share in the index where the weight is determined by the capitalization of each share. The Fund Managers using this strategy approach assume that it is very difficult / impossible to beat the market returns consistently / continuously in addition to the lowest possible transaction costs. Another advantage in passive strategy is diversification is done automatically and thoroughly. The disadvantage of this passive strategy is that the yield is likely to outweigh the market yield or the index of which the reference is very small.

ACTIVE STRATEGY APPROACH

The active strategy approach tries to address the weakness of passive strategy that is trying to beat market returns. The active strategy approach outlines two strategies: stock selection and timing strategy. As a tool in the stock selection of stock selection strategy is divided into two groups, namely groups that use technical analysis and groups that use fundamental analysis. Technical analysis is an approach that attempts to predict the price or direction of price movements based on past prices and volume changes. Patterns and price charts and stock volume in a period (daily, weekly, monthly, etc.) are the specific things analyzed in technical analysis. The assumption underlying the technical analysis is the stock price and the direction of movement can be seen in a certain pattern, if a pattern of stock price movements can be identified then the return (return) can exceed market returns. Based on several studies Technical Analysis proved to have a high success rate in the short term (short investment period). In contrast to Fundamental Analysis, more emphasis on determining the value (value) of a company and its growth potential in the future. Fundamental Fundamentalists are divided into two groups: Growth Investing and Value Investing. Growth investing emphasizes the purchase of shares of growing companies (eg, sales growth, profits, etc.) that are high or higher than the growth of other firms in similar industries. Usually the shares of the company have a higher rate of P / E (price earning ratio) than the average P / E level of similar industries. In contrast to Value Investing, the company's stock price is lower than its share price in the stock market, where the company's stock price tends to have a lower rate of P / E (P / E) than the average P rate / E similar industries.

The timing strategies approach is divided into two approaches: market timing strategy and buy-hold strategy. The definition of market timing strategy is a strategy that emphasizes the time to enter and exit the market and take advantage of changes in direction or market movement. This strategy is closely related to the use of technical analysis and usually the investment period is short and medium term. While the buy and hold strategy is more emphasis on purchasing shares based on the performance of the company concerned and the long-term investment period.

The advantage of an active strategy is that there is a possibility that portfolio returns may exceed the market but the drawback is that the rate of returns on returns may also be below market yield and diversification is not automatically made.

 Source:

1. Scott, Maria Crawford (2005). "Investing Basic and Beyond" .Chicago: American Ass