Capital growth strategy implies obtaining an annual rate of return above market (S&P 500, RTS). This becomes possible due to the fact that the investor has the right to choose issuers and entry points, abandoning companies whose era has ended, but they are still part of the market.
What lies in the path to success with this investment strategy?
In-depth assessment of the current state of the company and its plans for the future. A thorough understanding of what is happening in the sectors of the economy, and how society will develop in the coming years. A broad outlook is also a faithful companion to a successful investor.
Example: today HP Inc. and Xerox are at a crossroads that will shape their future. The fact is, the main activity of these companies is the production of printers, plotters, copiers (HP also has a PC assembly, Xerox has military products, but this is a small fraction of the total turnover). The world is increasingly moving into the field of digital workflow, and this movement is natural. Only a madman can expect the situation to turn 180 °.
As a result, companies are faced with a choice: to unite and absorb smaller representatives of the industry, which will increase control over the dwindling number of consumers, or to move on their own, but the only option to survive is to bring a new product to the market that will be in demand by the society of the future. Naturally, there is no confidence in the future well-being of HP and Xerox, and to be honest, there is little hope. Accordingly, I would not consider their shares in a portfolio with a capital growth strategy.
The above example is a superficial analysis, the difficulties that await this or that company (industry) in the future are not always easy to understand. It often takes a very long and deep digging. Otherwise, you will not feel confident in your assets and their growth.
Capital Growth Strategy Advantages:
- the investor, with the proper approach, receives a return higher than the market one, sometimes in multiples.
- the result of the investment is felt even with a small investment capital.
Disadvantages of capital growth strategy:
- the choice of issuers requires more attention and knowledge.
- a high probability of making a mistake for beginners and short-sighted investors. It is fair to say that almost everyone at the beginning of their journey made a decision to buy shares of a renowned company, which were in a strong drawdown, justifying the choice as follows: "where it falls further, it will definitely grow." But, no matter how much the paper cost earlier, it can fall indefinitely until it reaches the price equal to 0.
- fixing profits is possible only when assets are sold.