Devise A Search Strategy:
You may have wondered how professional money managers and investors go about choosing attractive and appropriate investments – what are their search strategies? Due to their mandates and investment objectives, professional money managers usually require a disciplined and efficient process of filtering out appropriate investments for their portfolios. All successful investors have comprehensive search strategies; however, they are usually unique and cannot always be "mimicked" due to the differing needs amongst individual investors. This is further made difficult given that a search strategy develops naturally from one's own investment philosophy, and is heavily influenced by one's habits as well as strengths and weaknesses.
Think about the world-renowned Warren Buffett for a moment. Famous for being a shrewd value investor who purchases well-run companies with solid business models, he believes in investing for the long-term, and does not trade financial assets on a short-term basis. Due to the nature of his investment philosophy (long-term value), he does not need to develop an algorithm or run a sophisticated computer programme that would help him screen and filer out appropriate companies for him to invest in. He could take the time he needs to diligently study suitable candidates for his portfolio.
In contrast, a high-frequency trader would require sophisticated computer programmes to execute his or her investment plans. Additionally, Mr Buffett is also known for his love of scrutinising financial statements or reading annual reports of companies. His interest for doing so has evolved and developed into a subconscious search strategy for him to manage Berkshire Hathaway's portfolio.
Ask yourself: "How do I go about choosing investments?" Some people get investment ideas from conversations with family, friends, colleagues or their acquaintances, while others get ideas by discussing with their stockbrokers. There is no right or wrong way, but being aware of your search strategy and financial needs and limits will help you crystallise your research process and perhaps improve the way you filter and select your investments.
Summary:
- A comprehensive search strategy helps one to find appropriate investments in an efficient and disciplined way
- Search strategies are unique, as they usually develop naturally from one's own investment philosophy. As such, no two investors will have an exact identical search strategy
- Answering questions like "How do I go about choosing investments?" will help you to be aware of your search strategy and crystallise your investment research process
The Research Team is part of iFAST Financial Pte Ltd.
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