What Is Wall Street's Preferred Stock Investment Strategy?

Many are searching for the stock investment strategy that the experts use. They sometimes assume that if they could discover the best strategy used most often by Wall Street investors or big investing houses that they will be successful in the market.

No Magic Bullet

Despite this desire for the single best investment strategy, investors generally come to realize that there is not single strategy that works all of the time for everyone.

There are many different kinds of strategies for choosing stock and for choosing mutual fund companies in which to invest. Some involve analyzing the companies and choosing the ones with the best possible management philosophy and business plan, while others completely ignore the company and instead focus on the past history of the stock price with no regard to management or philosophy.

Some strategies involve quick stock turn around, and others take the long-term approach.

Nonetheless, the most commonly recommended and most often touted stock investment strategy is the buy and hold strategy.

Defining Buy and Hold

Buy and hold is a strategy designed for the long term. The philosophy that underlies this strategy is that the market will eventually yield good returns, despite volatility that gives very low returns or very high returns at any particular moment.

The buy and hold philosophy is in direct opposition to the Market Timing philosophy that advocates quick movement in and out of the market, encouraging investors to buy low and sell high.

The buy and hold philosophy, as is suggested by the name, advocates choosing particular stocks or mutual funds based on solid research, and then simply holding onto them for many years.

Efficient Market Hypothesis

The efficient market hypothesis is an argument used in favor of the buy and hold strategy, but it is not the only support for the buy and hold technique. In fact, many of the most outspoken advocates of buy and hold reject the efficient market hypothesis (or EMH).

Nonetheless, the EMH holds that the market price for a stock already reflects all known information about the company, market and competition. The prices change very quickly as new information is added, discovered or created, and therefore, there is no point trying to outdo the market.

This philosophy has proven to have its problems, and is not accepted without reservation because of anomalies and situations in which it proves incorrect; it is nonetheless.

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