The appropriate asset management advice nowadays are often the heart of effective investment.
If you want to create wealth through investment, it is important to have the right strategy in place.
Overall, you must understand that a great asset management strategy is never about how much profit you can earn.
It is in general about how effectively you can reach your investment target using them.
In very simple terms, you can address an investment strategy as a set of rules that dictate the course of your investment.
These rules do not just bring in a series of discipline and order to your asset management strategies but also comparatively a higher degree of assurance.
Often, you can also look at the asset management strategies as a game plan.
It contains the aim of garnering maximum profit.
Every asset management strategy depends on the kind of
- Future purpose
- Time duration
that a specific investor has in mind.
It guides their asset management advisory decision and often decides the course of their future asset allocation as well.
You have to understand that effective asset management strategies nowadays have several important sub-parts as well.
They include components like
- Risk Guidelines
- Asset allocation targets
- Buy- sell guidelines
When all these various components work synchronously, the investment strategies help you earn the profit and grow your wealth.
But you must remember that these need to work together.
Your strategy will fall flat if you concentrate on any one factor and don’t pay equally close attention to the various other relevant elements.
So, an effective asset management advisory is one that can do justice to your investment goal without inconveniencing any specific element.
In many ways, it is a test of your trading skills.
It points out how effectively you can read the market and gain from the various moves.
The Modern Definition of Asset Management Strategy
When you are consider as a trader, you must understand that incorporating the right asset management strategy is a rather recent phenomenon.
The various trading tools, advancement in technology and a gamut of internet driven facilities have brought a brand new flavor to your investment.
The whole approach to creating asset management advisory nowadays been developed with time.
With the onset of the internet and better technology, traders now have access to live price quotes and a more immediate analysis.
Even for trading large chunks, investors have a far better access to potential future implications.
That brings in a lot more confidence and cohesiveness to your asset management strategies.
The term asset management is used in a rather broad context.
We use it for describing any buying/selling activity that is undertaken with a profit motive.
However, this is also a rather modern concept.
Earlier, if we go by the way Keynes had used, the term investment had a rather restrictive connotation to its entire usage.
In fact, the basic idea of Keynes’ description was creating a distinctive divide between asset management and speculation.
Just putting in money cannot be sufficient.
There has to be an in-depth analysis of the profit potential, the motive.
The way investor psychology can impact an investment is also a matter of great concern.
Concept of Asset Management Strategies
After this came Benjamin Graham. The whole concept and understanding about asset management strategies was clarified even further.
Often called the father of modern security analysis, Graham too emphasized the importance to distinguish between investment and speculation.
As early as the 1950s, he identified that not all speculation can yield positive results.
Some speculation might result in an inappropriate asset management advice.
This is exactly why asset management strategies have to distinguish between the two.
Whenever you are trying to analyze or judge the efficiency of an investment tool, you must understand that all investment strategies have common features.
It is often these features that help distinguish between a great strategy and a not so good one.
1. Sparks Of Intelligence
It means a great investment strategy which stands apart.
It is striking not just in terms of its diversity but also its uniqueness.
Most importantly, it needs to generate sufficient profit and have a distinct usefulness quotient.
2. Instill Confidence
Often a great asset management strategy hardly conforms to established norms.
But you are so sure of it that your confidence will highlight your commitment.
As Buffett said, you need to “be fearful when others are greedy, and be greedy when others are fearful.”
Stating the obvious with your strategy isn’t a big deal. Your strategy should be able to create a distinctive impact.
3. Accept the Inevitability
Accepting defeat as gracefully as you accept victory is the sign of a great strategist.
The overall idea is you have the mettle create a great idea, but there are times that your strategies might fall flat.
You must accept that too as humbly.
Creating a great strategy needs a lot of hard work and ability to spot an opportunity at the earliest.
An asset management strategy that helps you earn profit need a lot of fundamental understanding.
Types of Asset Management Strategies
When you set out to study investment strategies, you must understand that there are various ways to group them.
However, we decided to identify some broad parameters on the basis of which they can be categorized into four major types
1. Creating Value-Based Investments
The purpose of an asset management is decidedly looking for value and then the long-term sustainability of it.
Let’s say you have decided on a company that you would like to invest in.
You have made this decision on the basis of some key factors
- Quality of service
- Production dynamics
- Future profitability
Basically, the asset management advisory is not just for today but also the future.
In short, you are looking for the most value based proposition that helps you invest in maximum future profit.
It is needless to mention that the price that you are shelling out for the investment is crucial.
The idea invariably is maximum profit with minimum investment.
Perhaps creating value in investment is best described the way Warren Buffet explained.
He said, “You look to the asset itself to determine your decision to lay out some money now to get some more money back later on” Well nothing could explain a motive of buying any better.
Indeed when Buffett is investing, he is never looking for short-term gains.
As an investor, he is willing to pay the price for a stock based on the kind of value it would yield in future.
2. Fundamental Analysis of Long-term Value
Another key consideration for a value-based asset management advice is, of course, the fundamental analysis of long-term value.
Benjamin Graham, the father of security investment and analysis, insisted on key metrics that decided value.
These were kind of filters or screens that helped in identifying underlying value.
Hence, it can be easily considered to be one of the pillars of a great investment strategy.
- Correlation of the PE to the 5-year average, he says this should be 40% less
- Dividend yield higher than Corporate Bond Yield
- Correlation of price and book value
- Pricing vis a vis net current assets
- Debt-equity ratio at 1
- Current assets Vs current liabilities
- Debt should be lower than current assets
- EPS growth
- Period of sustained negative earnings
Therefore, all these effectively become the benchmark for some great asset management advisory decisions.
These various parameters can easily help you identify the mettle of your investment strategy.
In many ways, it becomes an instantaneous test for both your asset management as well as the strategy that you are employing.
Therefore, when you are looking at creating sustainable value, your investment strategy has to take up a pretty timeless quality.
-Investment Time Frame
Your motive then finally concentrates on opportunities that can yield value irrespective of time.
It is an investment that provides you with long-term value.
This should be irrespective of external factors like political consideration or even the business environment that they operate in.
Perhaps, for this reason, the holding period is also such a great pre-condition.
Whether you consider Buffett or Graham or most celebrated investors, the holding period in their investment strategy is forever.
A longer holding period is what will help you identify the true worth of stock.
So, if you want to create a value based investment, the time frame of your investment is crucial.
The rule of the thumb goes with a 3-year or a 5-year target.
That most times is considered to be an appropriate period to decide on the value.
The Risk Element in Asset Management Strategy
When you consider the time frame, there is another factor that you would have to consider to create the perfect asset management strategy.
The risk associated with your strategies. In fact, every asset management advisory incorporates a certain amount of risk management.
You look to diversify risk in many ways, be it by distributing the time frame, the kind of sectors in your holdings and also the profitability aspect.
Targeting different geographies, profitability environment and the relative value creation that happens in the interim.
However, there is one school that believes this long-term hold strategy is rather conservative and extremely old school.
Well for them, Noble Laureate, Paul Samuelson, summed up the essence of a great strategy very well.
He said that investing was relatively a slower process, pretty much like watching grass grow.
The casinos in Vegas were better options for those who needed instant gratification.
1. Identifying Speculation
While on the face of it, the two terms, asset management strategies and speculation do not go hand in hand, they are indeed interconnected.
Do you know that you could actually have strategies that could lead to strategies?
Perhaps if you saw the Chinese markets through 2015-2016, you could better understand the correlation between the two.
So what do you understand by speculation?
-Buying and Selling
Well, it can be defined as an act of buying or selling asset classes to take advantage of the fluctuation in prices.
You expect to earn profit from the fluctuation that happens in the price.
Something unique is that the time frame in this kind of a strategy can also be pretty long-term depending on the asset class.
Think of the variety of speculation in the Chinese market or the dot com bubble.
In this context, it is perhaps interesting to note what celebrated author, Milton Friedman had to say.
Way back in the 1960s, he identified that speculation is often considered almost like gambling by the street.
Most times, people did not attach any asset value to this kind of strategies.
However, Friedman justifies, speculators are making an informed choice, and therefore, it is a justifiable investment strategy.
Those who are speculating, often have access to information that helps them to take advantage of the many who are less knowledgeable in that context.
This is an investment strategy that is based on the fact that the investor is creating a policy to take advantage of the additional knowledge that they might have.
It is also taking into consideration relative lack of knowledge of many others, which they would take advantage of.
So, one of the underlying theories of speculation is that it often takes advantage of the belief that market patterns repeat themselves.
So in a way, the technical analysis that we know today was based on this speculation assumption to start with.
The close correlation of the price-volume patterns is often considered the earliest basis of speculation.
The assumption here is that past and present price trends often repeat themselves.
Therefore, speculation as an investment strategy thrives on the whole concept that you can predict the future price on the basis of past patterns.
Trading As an Asset Management Strategy
In case what’s the cardinal difference between trading and investment, let me tell you there are many.
- In fact, it is a kind of asset management strategy that is based on a shorter time frame.
- It is needless to mention that this, as an asset management strategy, is pretty modern.
- They are essentially based on the advantage that technology and lower commission rates at brokerage have brought forth.
The popularity of online trading has no doubt helped in furthering this trading vehicle.
-Modern asset management
Therefore, it is a relatively modern asset management tool that is a direct outcome of the sophisticated trading practices that has evolved in recent times.
Many sophisticated procedures are being used like artificial intelligence options as well as market algorithms.
In this technique, the traders take advantage of the change in prices in a matter of seconds.
The traders buy and sell stocks or shares in a matter of minutes. Of course, this has been made possible with the help of sophisticated trading technology.
Most importantly, trading as an investment strategy could develop only once the internet began to impact stock prices and trading in a material way.
The trader as a result of this technology, buy and sell securities in a matter of seconds.
Sometimes they hold on to their stocks for less than few hours.
-Trading as an Investment Strategy
In many ways, trading as an investment strategy too involves some amount of speculation.
They are looking at possible windows of price volatility to earn profit from it.
But the difference between a speculator and trader is that a speculator tries to time the future based on present trends.
It is pretty much like trying to board a train that has not reached the station.
The trader’s investment strategy is a little different in nature.
To use the same train analogy, they are jumping between platforms looking for the fastest train to embark upon.
While investment can at times be a pretty emotional affair, trading is pretty much heartless.
It is a buy-sell of stocks with clinical precision and does not involve any emotions whatsoever.
In fact, a bulk of trading happens on an automated platform.
You feed in your target, stop loss and trade is executed automatically when you reach these levels.
The Art Of Day Trading As An Investment Strategy
However, trading as an investment strategy has one specific subpart.
That is called day-trading.
As the name suggests, in this case, the bulk of trade happens in a matter of hours, and the entire strategy is spread out over a single day.
This is, of course, a very refined form of trading and mostly undertaken by seasoned and veteran day traders.
In this, multiple trades are undertaken in a given period, and small profit is earned on each one of them.
Day trading extensively uses margins, borrowed funding and online trading.
Though there is no dearth of day traders in the market at the moment, most security firms discourage it as a trading strategy.
This is because this type of investment strategies can be pretty much be likened to gambling.
Also, the margin of profit is fairly limited in the case of day trading. This is because of the brokerage that needs to be paid on a sustained basis.
Index Fund Asset Management
There are two factors that are constantly abetting the evolution of asset management strategies.
- The scope of return for investors
- The time involved in executing the strategies
They have been impacting the overall asset management policies.
In fact, it has gained so much popularity in recent times that close to 91 million investors owned mutual funds in some or other format by the middle of 2015.
However, in terms of gain expectation, there are very few fund managers who can beat the market on a consistent basis.
In fact, John Bogle of the Vanguard Group actually executed the idea in its modern format.
In 1975, he created one of the first passively managed index funds.
Nowadays, Index asset management has become a long way, and there is a variety of asset management strategies that are exist this days.
From systematic asset management plans to large asset management, there is no dearth of the opportunities and investment strategies in this context.
John Bogle’s entire concept focus on introducing a relative fair kind of investment strategy.
1. Investors Group
The idea of investors as a group needs an offer of strategy that can help them constructively book profit.
Some of his key thoughts include
- Investors are the market so as a group they cannot outperform the market
- The Investors as a group are almost always underperform the market
- They have to account for the cost of participation in the market
The variety of transaction and portfolio expenses eat into the overall profitability.
Though John Bogle’s concept was initially redicul, history has been prooven otherwise.
Critics thinks about how could investors be satisfy with just the average returns from the market.
But the beauty of this asset management strategy was the low-risk exposure and the rather consistent return outlook.
Therefore, popularity and acceptance were never a concern for Mutual Funds.
2. Mutual Funds
Today we have seen several variations of this basic concept.
From specialized funds to ETFs. In fact, by end of 2014, there were close to 400 such Index Funds.
The total asset under consideration was nearly $2.1 trillion.
One of the most cardinal elements of this asset management concept is the premise that individuals cannot outperform the market.
However, that said, this continues to be one of those asset management strategies that have helped individuals log on consistent gains.
In fact, in many ways, this has been the biggest pull for mutual funds.
Active Vs Alternative Asset Management Strategy
When you are exploring the various types of asset management strategies, one aspect to pay attention would be the active and alternative forms of investment as well.
In this context, an alternative asset management strategy essentially indicates a non-conventional investment option.
In this kind of asset management, investors are not trading in a conventional asset class like stocks or bonds.
Rather options like private equity, hedge funds, real estates and many such asset management options.
Normally, this asset management strategy is apply by institutional investors and high net worth individuals.
These are generally very deep-pocket investors who are looking to invest in options with a lower rate of regulation.
Needless to mention that the scope of return is also much higher in this case.
But, the relative risk in this kind of asset management strategy is also much higher.
As a result, the asset management formats are by relatively expert investors who are better to accept the challenges that gets in investment using these kinds of strategies.
Hedge funds, especially as a form of alternative investment has become popular in recent times, and you have a relatively large number of investors exploring this channel of contribution.
3. Active asset management
Active asset management, as the name indicates is a way more actively manages the investment strategy.
This is essentially a type of portfolio management where the fund manager targets outperforming the index that the portfolio is upon.
The fund manager, in short, takes advantage of the various inefficiencies of the market to derive the maximum value to their investment outlook.
Comparing to the alternative asset management, the portfolio manager is more actively deals on how to execute this kind of investment strategy.
Most times, you would notice portfolio managers use a variety of strategies to create these actively managed portfolios.
The whole concept of these active investments focuses on the returns.
But return is the moot point in every kind of asset management strategy.
Whether you are pursuing an active asset management or an alternative option, maximizing returns and minimizing risk is the fundamental trading mantra that drives strategies across the board.
The point about an asset management strategy is invariably about the relative efficiency of it Vs market forces in general.
Nowadays Asset Management Strategies comes handy in Stock Market
Therefore, we can conclude that stock market profits can often be rather elusive. This is where asset management strategies come in handy.
Whether your investment portfolio is to put into gear for the longer term or it is of shorter time duration, the fact remains that a good strategy can always enhance gains.
If you want active returns from the market, investing as per a properly true plan of action is the best way forward.
Though the concept of the perfect asset management strategy is more Utopian in concept, the fact remains that strategy goes a long way in limiting losses.
Nothing is 100% foolproof, but the whole idea of asset management is to put into gear towards creating the maximum gain potential.
In this context, you must understand that the fundamental motivation of most asset management strategies is to maximize the return outlook.
It can be focus on number of means like;
- Duration of investment
- The scope of diversification
- Possibilities of expanding the scope of investment
Our basic human instinct makes us pine for more.
So though we all understand that there can’t be anything like a 100% perfect asset management strategy, the search for it continues nevertheless.
While there can’t be a possibly fool-proof solution, you must remember that investment strategies often help in maximizing the return prospect and capping the extent of losses to a large extent.
Perhaps the biggest advantage of an asset management strategy is that it helps in bringing in some kind of certainty to your overall investment initiative.
Your asset management calls are not haphazard anymore, and you are more or less advancing as per a pre-decided plan.
Perhaps the biggest advantage of a strategy is it helps you create a constructive plan to take forward your investment goals.
Now we all understand the importance of goal setting and its positive implications. It brings in a certain structure to your overall investment goal.
The broad idea is to take forward a distinctive trading style with a decided profit target in mind.
That makes sure that you are also able to gauge your relative loss or success potential. The kind of asset management strategy that you pursue will definitively impact your future returns.