Investment strategy: unpicking stocks

There are two main types investment strategies that are being used by most of the investors. These investment strategies are index following and stock picking. An investor chooses one of these strategies and applies them to its investing portfolio. Although there are two strategies, the outcome of each strategy depends not only on the strategy, but also on the choices someone makes.

The Average Directional Index indicator (ADX)

To continue the article series about the objective technical analysis, I will discuss the Average directional index (or ADX) in this article. Earlier, I have written articles about the moving average, the moving average convergence/divergence indicator and the relative strength index, which all are objective technical analysis methods. Just like the other objective technical indicator, the average directional indicator is used to measure trends of a share.

Relative strength index: signals and usability

After the moving average and the moving average convergence/divergence, the RSI will be the third technical indicator on which I spend an article. The RSI, or Relative Strength Index, is one of the most used technical indicators. The RSI is, just like the moving average and MACD, an objective, mathematical technical analysis method.

Leverage

The landscape of investment products consist of products with a large and products a small leverage. Investment products like bonds have a small leverage. Options, however, have a large leverage. Investing in bonds will generally result in a smaller profit or loss than investing in options.

Different types of technical analysis

I like to think that the risk of each range of investment products is the same, like I mentioned in an earlier article on technical stock analysis. Each share has the same (high) risk level and savings on bankaccounts have a low risk level. Allthough the risklevels are the same within ranges of investmentproducts, this does not mean that the risk of each share is the same at every point in time, based on the price-earnings ratio or dividend yield. Expensive shares do have a higher risklevel and a lower chance on a high return. Another method that is often being used to determine the risklevel and possible return is technical analysis.

Stock buybacks and issuing of shares

A lot of information can be found about stock buyback programs and the issuing of shares. Most of the times, the impact on the return on investment is mentioned in these articles. Most investors think that the impact on the return on investment of stock buyback programs and issuing of shares are opposite. In this article, I would like to explain that this is not necessary the case. Besides that, I will discuss the different views on the buyback of shares and the issuing of shares by companies.

MACD indicator, signals and limitations

I have written different articles about technical analysis. In an earlier post, I discussed the different types of technical analysis that are used and their pros and cons. Besides that, I have discussed the moving average in an article, the use of this technical analysis indicator and the different versions of the moving average. In this article, I will describe the MACD technical analysis method. The MACD is an indicator that uses the moving average.

Altman Z-score

In a previous article on this website (What is the risk of investing?) it was mentioned that the largest risk for a company is bankruptcy. But how big is the risk of bankruptcy? And how can that risk be determined for a specific company? To answer these questions, the model of the Altman Z-score can be used.