We show you how to rake in big money. The strategies of the largest stock market gurus

Investment Strategies of André Kostolany: “100 minus your age”

Andre Kostolany is a share market expert born in Germany.

It is known that shares will give higher returns as compared to bonds. And fixed income instruments will have steady but slow value appreciation. It is very important for investors to find a balance of shares and fixed income instruments in their portfolio. As a rule of thumb made popular by the great investor Andre Kostolany, share portion of your investment portfolio shall be equal to 100 minus your age. It means if you are 35 years of age then your investment portfolio shall have 65% shares and balance 35% shall be fixed income instruments.

New investors often finds themselves in this dilemma whether to select shares or fixed income instruments as their investment options. As discussed above, both these options has their own advantages and disadvantages. Ideally an investor shall have a mix of both type of investment instruments. The maid benefits that investors can get by investing in shares is that its long term growth is phenomenal. But in short term the value of shares fluctuates like mad. So in short term fixed income instruments are the better investment option as compared to shares.

Investment Strategies of Peter Lynch: “Mid Cap’s are profitable”

Peter Lynch is one of the best fund managers this world has seen for quite some time now. Peter lynch is know to invest in share market by using simple investing strategies mixed with common sense. Like he will never invest in a company without doing the fundamental analysis of its business. He always stood away from those stocks which is taking the lime light, in other terms we call such stocks as “Hot Stocks”. Peter Lynch has always believed that the growth prospects of smaller companies (particularly mid caps) has much stronger growth prospects in long term as compared to large cap stocks. In order to buy a large cap stocks you will need to apply value investing in order to buy them at bargain price. For this value investors sometimes waits for years for prices of large cap stocks to come down to bargain levels. But mid cap stocks which are not always overpriced hence are available at reasonable prices. But it is very important to note about mid cap stocks that fundamental analysis of these stocks are very important. As a rule of thumb smaller mid cap companies can grow at a rate of 20% per year. Peter Lynch is also a firm believer like Warren Buffett that investing for long term is most profitable.

According to Peter Lynch, all stocks can be categorized on basis of their growth prospects:

* Slow Like a Snail – This type mainly includes companies in large cap brackets. In terms of volume of business they are so large that further growth will be difficult. Such companies (as a rule fo thumb) grows only as fast as the economic growth. Warren Buffett selects these stocks when they are available at bargain price. He has his own way of analyzing market price of stocks (intrinsic value). At times when these stocks are overvalued Peter Lynch focuses his attention on small and mid cap stocks to generate his revenue.

* Big But can grow – These companies can some times be bigger than the companies discussed above. But they have that competitive advantage that makes their product and services sell more in future. This gives them the ability of grow irrespective of their over size. These companies can grow at a rate fraction higher than the countries economic growth rate. Few examples of such companies are like Gillette, Coca Cola, etc.

* Fast like a rabbit – These stocks are Peter Lynch’s favorite. These consist of fundamentally strong and aggressive companies. These companies can grow really fast in five to ten years time. Peter Lynch has his own ways of evaluating and selection of these stocks. We will discuss some valuable share evaluating tricks of peter lynch:

o EPS Growth –Invest in companies that has strong EPS growth rate (max 20%) for last five years.This is an indicator of volume growth prospects of that company.

o Stable Profit Margin – Invest in companies that has been able to maintain in pre tax profit margins last five years. This is an indicator of competitive advantage of that company.

o Debt Equity Ratio: Invest in companies that has optimum debt equity ratio. His rule of thumb is that debt equity ratio shall not be more than 0.33. The lower the better.

o Growth Ratio Vs PE ratio: Invest in companies that has a ratio of Growth and PE ratio of more than one. Suppose PE ratio of a company is 5% and its growth is 10%, it means Growth/PE is two (2).

o Low Inventory: Invest in companies that has a low inventory in their stores. If the company is not able to sell its finished good inventory it means there is a problem.

o Mutual Fund’s interest: Invest in companies that has still not been targeted by institutional investors like mutual funds etc. If the above value aspects of a company makes it a suitable buy and mutual funds are not investing heavily on this company then probably they will do so in future. Hence in future the market price of this stock is bound to go up.

o Lead a sober life and save more: Peter Lynch always believes that by regular saving and investing at right time in right companies will do a world of change in the life of investors

Related posts:

1. Top 5 Greatest investors of all time As per Getmoneyrich.com, the top 5 greatest investors of all...