The Most Common Type of Investors
Investing in the stock market requires more than just time and money. Most people have educated themselves in this field either through formal schooling or just by burning their fingers in the market. These seasoned investors have something that sets them apart. They’re aware about their investment objective.
Based on their objectives, the can be classified into the following investor types:
- Growth Investors: The primary agenda of growth investors is to obtain high rates of growth and capital appreciation. These are people who have a high risk appetite and are usually found investing in companies with higher P/E ratio. These companies are looking to make substantial profits in the near future. Although, if the company fails to receive expected targets, the price of the stock is destined to fall. Growth investors are not interested in higher dividends that might be issued when the company does well; they’re rather focused on capital appreciation as these profits can be plowed back in to facilitate faster growth.
- Capital Appreciation Investors: These are, in very simple words, long term investors. They’re objectives is to get capital appreciation over long periods of time. Here, the term ‘appreciation’ refers to the increase in value over time.
- Value Investors: The idea behind value investing, in a way, is opposite to that of growth investing. This is because the stocks in which the investments are made are often under-priced and have a low P/E ratio. These are often overlooked by the market. These stocks don’t always have a low price but a lower relative price when compared with earnings they produce. The assumption a value investor makes while investing in such stocks is that in the future, market will notice these stocks and the prices will rise.
- Income Investors: These are the kind of investors that have the least risk appetite. This mostly includes old and retired people looking for a steady income and capital preservation. They go for what are commonly known as ‘blue chip’ stocks, which pay definite and stable dividends. These stocks are less volatile. Due to these reasons they’re often called defensive stocks.
These are just the most common types of investors. Many investors even merge these strategies together until the reach their desired expectations.