Atlantic Capital Management

Atlantic Capital Management (133)

Wednesday, 20 March 2019 14:18

Strategic vs. Tactical Investing

Submitted by

How do these investment approaches differ?

Ever heard the term “strategic investing”? How about “tactical investing”? At a glance, you might assume that both these phrases describe the same investment approach.

While both approaches involve the periodic adjustment of a portfolio and holding portfolio assets in varied investment classes, they differ in one key respect. Strategic investing is fundamentally passive; tactical investing is fundamentally active. An old saying expresses the opinion that strategic investing is about time in the market, while tactical investing is about timing the market. There is some truth to that.1

Strategic investing focuses on an investor’s long-range goals. This philosophy is sometimes characterized as “set it and forget it,” but that is inaccurate. The idea is to maintain the way the invested assets are held over time, so that through the years, they are assigned to investment classes in approximately the percentages established when the portfolio is created.1

Picture a hypothetical investor. Assume that she starts investing and saving for retirement with 60% of her invested assets held in equities and 40% in fixed-income vehicles. Now, assume that soon after she starts investing, a long bull market begins. The value of the equity investments within her portfolio increases. Years pass, and she checks up on the portfolio and learns that much more than 60% of the value of her portfolio is now held in equities. A greater percentage of her portfolio is now subject to the ups and downs of Wall Street.

As she is investing strategically, this is undesirable. Rebalancing is in order. By the tenets of strategic investing, the assets in the portfolio need to be shifted, so that they are held in that 60/40 mix again. If the assets are not rebalanced, her portfolio could expose her to more risk than she wants – and the older she gets, the less risk she may want to assume.1

Tactical investing responds to market conditions. It looks at the present and the near future. A tactical investor attempts to shift the composition of a portfolio to reduce risk exposure or to take advantage of hot sectors or new opportunities. This requires something of an educated guess – two guesses, actually. The challenge is to appropriately decide when to adjust the portfolio in light of change and when to readjust it back to the target investment mix. This is, necessarily, a hands-on style of investing.1

Is it better to buy and hold, or simply, to respond? This question has no easy answer, but it points out the divergence between strategic and tactical investing. A strategic investor may be inclined to “buy and hold” and ride out episodes of Wall Street turbulence. The danger is in holding too long – that is, not recognizing the onset of a prolonged downturn that could bring losses without much hope for a quick recovery. On the other hand, the tactical investor risks buying high and selling low, for figuring out just when to increase or decrease a portfolio position can be difficult.

Investors have debated which strategy is better for decades. One approach may be better suited than another at a particular point in time. Adherents of strategic investing point to the failure of active asset management to beat the equity benchmarks. A 2018 Dow Jones Indices SPIVA Report noted that across the five years ending June 30, 2018, more than 76% of U.S. large-cap funds failed to return better than the S&P 500. A proponent of tactical investing might counter that by arguing that this percentage might be much lower within a shorter timeframe. Ultimately, an investor has to consider their risk tolerance, objectives, and investing outlook in evaluating both approaches.2

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - money.usnews.com/investing/investing-101/articles/2018-07-25/whats-the-difference-between-strategic-and-tactical-asset-allocation [7/25/18]

2 - us.spindices.com/spiva/#/reports [2/5/19]

Thursday, 07 March 2019 17:31

Value vs. Growth Investing

Submitted by

There are those who favor value and those who favor growth.

You might be initially confused by these terms or even suspect they aren’t that different in terms of what each model offers you as an investor, but they are very distinct approaches, and it’s good to understand these two schools of thought as you invest. This understanding could help you make important investment decisions, both now and in the future.1

At first glance, some of the advantages to each approach may not be immediately obvious, depending on what sort of market you are facing. There is an element of timing to both value and growth investing, and that concept may be helpful in understanding the differences between the two.1

Investing for Value. Value investors look for bargains. That is, they attempt to find stocks that are trading below the value of the companies they represent. If they consider a stock to be underpriced, it’s an opportunity to buy; if they consider it overpriced, it’s an opportunity to sell. Once they purchase a stock, value investors seek to ride the price upward as the security returns to its “fair market” price – selling it when this price objective is reached.

Most value investors use detailed analysis to identify stocks that may be undervalued. They’ll examine the company’s balance sheet, financial statements, and cash flow statements to get a clear picture of its assets, liabilities, revenues, and expenses.

One of the key tools value investors use is financial ratios. For example, to determine a company’s book value, a value analyst would subtract the company’s liabilities from its assets. This book value can then be divided by the number of shares outstanding to determine the book-value-per-share – a ratio that would then be compared to the book-value-per-share ratios of other companies in the same industry or to the market overall.

Investing for Growth. Growth investors use today’s information to identify tomorrow’s strongest stocks. They’re looking for “winners” – stocks of companies within industries expected to experience substantial growth. They seek companies positioned to generate revenues or earnings that exceed market expectations. When growth investors find a promising stock, they buy it – even if it has already experienced rapid price appreciation – in the hope that its price will continue to rise as the company grows and attracts more investors.

Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow’s leaders; they are less focused on the value of the underlying company.

For example, growth investors may favor companies with a sustainable competitive advantage that are expected to experience rapid revenue growth, effective at containing cost, and staffed with an experienced management team.

Value and growth investing are opposing strategies. A stock prized by a value investor might be considered worthless by a growth investor and vice versa. So, which is right? A close review of your personal situation can help determine which strategy may be right for you.

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



Citations.

1 - https://kiplinger.com/article/investing/T052-C000-S002-value-vs-growth-stocks-which-will-come-out-on-top.html [8/2/2018]

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