Stock Investors: Types, Strategies, and Success Stories

As a stock investor, you're likely aware that there are several types of investors to consider. Value investors focus on finding undervalued stocks with strong fundamentals.

Long-term investors often adopt a buy-and-hold strategy, which can be a low-risk approach. This strategy involves holding onto stocks for extended periods, often through market downturns.

Growth investors, on the other hand, seek out companies with high growth potential, often in emerging industries. They're willing to take on more risk in pursuit of higher returns.

Some investors prefer a more hands-on approach, actively trading stocks in an attempt to time the market. This can be a high-risk strategy, but it can also lead to significant profits.

Warren Buffett is known as the "Oracle of Omaha" and has produced awe-inspiring investment returns over many years. His investing approach has produced an average annual return of 20% since 1965, almost double the performance of the S&P 500 during the same period.

John Templeton is considered one of the best contrarian investors, famously buying 100 shares of each company listed on the New York Stock Exchange that traded for less than $1 during the Great Depression. This simple, bold wager made him a very wealthy man.

Cathie Wood is the founder, CEO, and chief investment officer of ARK Invest, an investment management company that has expanded its assets under management to $24 billion by early 2022. One of the firm's top ETFs, the ARK Innovation ETF, has produced a 177% gain over the past five years as of early 2022.

Stock investors like Bill Ackman and Carl Icahn are known for their activist investing approach, acquiring significant stakes in public companies to force changes that they believe will increase shareholder value.

Their approach can be seen in the examples of companies like Virgin Galactic and Opendoor Technologies, which were taken public through special purpose acquisition companies (SPACs) led by Chamath Palihapitiya.

One key characteristic of successful stock investors is their focus on a specific approach to investing, such as value investing, as pioneered by Benjamin Graham.

Graham's approach prioritizes buying stocks priced below their intrinsic values, which has been a successful strategy for investors like Warren Buffett.

Buffett's investing approach has produced awe-inspiring investment returns, with Berkshire Hathaway's portfolio containing sizable stakes in many public companies across a wide range of industries.

Other successful stock investors, like Cathie Wood and Peter Lynch, have also achieved impressive returns through their investment strategies.

Here's a comparison of the annualized returns of some of the most successful stock investors:

These investors demonstrate that success in the stock market requires a combination of knowledge, discipline, and a long-term perspective.

Sallie Krawcheck is the CEO and co-founder of Ellevest, a digital-first investment platform for women.

She also chairs the Pax Ellevate Global Women's Leadership Fund, a mutual fund that focuses on companies advancing women.

Krawcheck has led some of Wall Street's biggest names, including Merrill Lynch, Smith Barney, US Trust, Citi Private Bank, and Sanford C. Bernstein.

Her mission is to help women reach their financial and professional goals and narrow the gender pay and wealth gap.

In June 2022, Krawcheck was featured on The Motley Fool's podcast.

There are several types of investors, each with their own approach to investing.

Pre-investors, such as friends and family, are not professional investors and commit a small amount of capital to a business.

Passive investors, like angel investors, commit capital but do not play an active role in managing the business.

Active investors, on the other hand, commit capital and are also involved in the business, making decisions on strategy and senior management.

Institutional investors, such as mutual funds and pension funds, invest the money of other people and can influence the price of assets.

Personal investors, including individual investors like you, invest their own capital and may take many forms, such as investing in stocks, bonds, and mutual funds.

Investors can be broadly categorized into two types: investors and traders. Investors focus on long-term gain and typically hold positions for years to decades, while traders seek short-term profits and hold positions for shorter periods.

Here's a quick rundown of the main investor types:

Venture capitalists are private equity investors that seek to invest in startups and other small businesses in their early stages with a potential for growth.

They typically don't fund startup businesses to get them off the ground, but rather look for companies that are already established and need help expanding. Venture capitalists usually invest in businesses that are looking to grow but lack the means to do so.

In return for their investment, venture capitalists seek an equity stake in the company. This means they become part-owners of the business and have a say in its decision-making processes. They also help nurture the growth of the company, providing guidance and support to help it succeed.

Venture capitalists are different from angel investors, who also invest in startups but often do so to help get them off the ground. Venture capitalists, on the other hand, are more focused on helping established businesses grow and expand their operations.

Traders are a different breed from investors. They're focused on short-term gains, holding positions for just a few seconds to several weeks. Scalp traders are the most extreme, holding positions for as little as a few seconds.

Traders focus on technical analysis, trying to predict the direction a stock will move in and how to take advantage of that movement. They're not concerned with the long-term prospects of a company, unlike investors.

To be a successful trader, you'll need to stay on top of the news and make quick decisions. This can be overwhelming, especially for new traders. If you're trading actively, you'll need to be prepared to make tough decisions quickly.

Traders often use direct access accounts to route orders directly to exchanges or alternative trading systems. This can help them find liquidity and execute trades quickly, but it typically comes with additional fees.

Institutional investors are organizations that invest the money of other people.

They can be mutual funds, exchange-traded funds, hedge funds, or pension funds, and they raise large amounts of capital from many investors.

Institutional investors can purchase large blocks of stocks due to the vast amounts of capital at their disposal.

This allows them to influence the price of assets in many ways.

Institutional investors are large and sophisticated, which gives them a significant impact on the market.

A personal investor invests their own capital, usually in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). This is a key characteristic of a personal investor, who is not a professional investor.

To be a successful investor, diligence is required. This means being thorough and careful in your research and decision-making.

A good investor must also be patient, as investing is a long-term game. It's essential to have a clear understanding of the risks and rewards involved.

Acquiring knowledge is crucial for a good investor, which involves staying up-to-date on market trends and financial news. This helps you make informed decisions about your investments.

Risk management is also a vital skill for a good investor, as it involves assessing and mitigating potential risks. This helps you protect your investments and minimize losses.

A good investor must also be disciplined, setting clear goals and sticking to a well-thought-out investment plan. This helps you stay focused and avoid impulsive decisions.

Optimism is also an essential quality for a good investor, as it involves maintaining a positive attitude even in the face of market volatility.

Common investor types tend to buy and hold market indexes, optimizing their allocation weights based on rules like Modern Portfolio Theory's mean-variance optimization. They often don't try to beat the market, instead focusing on steady returns.

Passive investors have become increasingly popular, overtaking active investment strategies in 2023 as the dominant stock market logic. The growth of low-cost target-date mutual funds, exchange-traded funds, and robo-advisors contributed to this shift.

Some investors prefer very low-risk investments, such as certificates of deposits and certain bond products, which lead to conservative gains. This approach is often associated with a conservative investor who prioritizes stability over potential for higher returns.

Investors with varying risk tolerances, capital, styles, preferences, and time frames exist. Some may prefer to take on additional risk to make a larger profit, investing in currencies, emerging markets, or stocks.

To be a successful investor, a certain set of skills is required, including diligence, patience, acquisition of knowledge, risk management, discipline, optimism, and the setting of goals. These skills are essential for navigating the complexities of the financial markets.

Investors can range from individuals buying stocks at home to multi-billion dollar funds investing globally, with the ultimate goal of seeking some return to build wealth.

Investors can range from individuals buying stocks at home to multi-billion dollar funds investing globally, all with the goal of seeking some return to build wealth. Investors commit their capital to various investment vehicles, such as stocks, bonds, real estate, and commodities, and encounter risk while trying to balance managing risk and return.

The performance of an individual stock is affected by investor demand, which can result in a stock's share price increasing if many investors want to buy it. On the other hand, if investors are selling rather than buying, shares may be worth less than paid for them.

Strong demand for a stock typically reflects the company's prospects for future performance, and investors should consider the company's profitability and overall market conditions when making investment decisions.

Investors make money in two ways: appreciation and income. Appreciation occurs when an asset increases in value, and income is the regular payment of funds from the purchase of an asset, such as a bond paying fixed payments at regular intervals.

Stock prices will be low enough to attract investors again at a certain point, and if you and others begin to buy, stock prices will tend to rise, offering the potential to make a profit.

An individual investor is someone who invests their own capital, usually in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). They're not professional investors, but rather those seeking higher returns than simple investment vehicles like certificates of deposit or savings accounts.

One key characteristic of individual investors is that they invest their own capital, which can be a personal and emotional experience. They may take a long-term perspective, focusing on steady growth over time.

Individual investors can choose to invest actively or passively. Passive investors tend to do better, as they often take a long-term focus and buy on a fixed regular schedule. Active investors, on the other hand, may trade more frequently, which can be riskier.

To manage their investments, individual investors will need to make trading decisions, such as deciding when to sell a stock or fund. They may also need to stay on top of the news to make the best decisions.

Here are some key differences between individual stocks and mutual funds:

Ultimately, individual investors need to consider their own goals and risk tolerance when making investment decisions.

Investors can group stocks into categories, and this is often done by industry experts. These categories, sometimes called subclasses, have their own characteristics and are subject to specific external pressures that affect the performance of the stocks within that subclass.

Stocks are often grouped by market capitalization, which is a measure of a company's size. Market cap is calculated by multiplying the number of outstanding shares by the current market price. This can be broken down into large-cap, mid-cap, and small-cap companies, with large-cap companies valued at over $10 billion.

Large-cap companies are typically well-established and stable, while small-cap companies are often newer and riskier. Mid-cap companies fall somewhere in between. Market capitalization is just one way to group stocks, and it's not the only way.

Stocks can also be grouped by the type of investor involved. For example, stocks held by pre-investors, such as friends and family, are often different from those held by professional investors like venture capitalists.

Professional money management can be a game-changer for investors. Whether you're a seasoned pro or just starting out, working with a professional can help you make informed decisions and achieve your financial goals.

There are two main types of professional money managers: human advisors and robo-advisors. Human advisors can design a customized stock portfolio and help with wealth-planning moves, but they typically charge a higher fee, around 1 percent of your assets annually.

Robo-advisors, on the other hand, are often cheaper, typically charging a quarter of the price or less. They can also handle most of your investing needs and offer planning services to help you maximize your wealth.

If you decide to work with a professional, you won't need to worry about deciding what to invest in. They'll take care of that for you. For example, when you open a robo-advisor account, you'll answer questions about your risk tolerance and time horizon, and the robo-advisor will create a portfolio tailored to your needs.

Here are some key differences between human advisors and robo-advisors to consider:

Ultimately, the choice between a human advisor and a robo-advisor depends on your individual needs and preferences.

Investing in the stock market has proven to be one of the best ways to grow long-term wealth, with an average return of about 10% per year.

To ride out the ups and downs, focus on the long-term average, rather than short-term gains or losses.

Making money through investments can be achieved in two main ways. Appreciation occurs when an asset increases in value, allowing you to sell it for more than you bought it for.

Investors can earn income through regular payments from assets, such as bonds that pay fixed payments at regular intervals.

Appreciation happens when an asset's value grows, and you can then sell it for a profit.

Market Capitalization is a measure of a company's size, calculated by multiplying the number of outstanding shares by the current market price.

It's a dollar value that gives you an idea of how big or small a company is. Market cap is often used to categorize companies as large-cap, mid-cap, or small-cap.

Large-cap companies are typically valued at over $10 billion, while mid-cap companies fall between $2 billion and $10 billion. Small-cap companies, on the other hand, are valued at less than $2 billion.

You might also hear about micro-cap companies, which are even smaller than other small-cap companies.

The defensive and cyclical investment strategies are two of the most popular approaches in the world of investing.

A defensive strategy focuses on preserving capital, often through low-risk investments like bonds and cash.

By doing so, investors can minimize losses during market downturns.

In contrast, a cyclical strategy involves investing in companies that are sensitive to economic cycles, such as those in the consumer goods or energy sectors.

These companies tend to perform well during economic booms but poorly during recessions.

A prime example of a cyclical stock is a company that produces goods that are in high demand during economic expansions, but in low demand during contractions.

This can be seen in the example of a company that manufactures luxury cars, which tend to sell well during economic booms but poorly during recessions.

You can choose to invest in stock mutual funds or exchange-traded funds, which allow you to purchase small pieces of many different stocks in a single transaction.

Stock mutual funds, also known as equity mutual funds, let you own small pieces of each company in the fund. Index funds and ETFs are a type of mutual fund that track an index, such as the S&P 500, by buying the stock of the companies in it.

A diversified portfolio can be built by putting several funds together, giving you a mix of different investments. This can help spread out the risk and potentially increase returns.

Focusing on the long-term is key to successful investing. The stock market has proven to be a reliable way to grow wealth over several decades, with an average return of about 10% per year.

The S&P 500 price return has varied significantly over the decades, but sticking with the market during tough times can lead to outsized returns. For example, the S&P 500 price return was -42% in the 1930s, but excluding the 10 best days of that decade, the return would have been -79%.

To put this in perspective, consider the following chart:

As you can see, sticking with the market during challenging times can lead to better returns.

You can start investing in stocks with little money, as most major investment accounts don't have a minimum or have extremely low account minimums. This means you can get started with virtually any amount.

To begin, choose how you want to invest, open an investment account, decide what to invest in, and determine how much you can invest. You can also consider using an exchange-traded fund (ETF) if you have a small budget, as they often have lower minimums than mutual funds.

The key to building wealth is to add money to your account over time and let the power of compounding work its magic. This means budgeting money for investing regularly into your monthly or weekly plans. It's simple to get started, and you can even buy fractional shares of stocks and ETFs if you can't afford a full share.

Here are some low-cost options to consider:

Remember, it's essential to keep things simple and expand as your skills develop. As a new investor, it's wise to start with index funds and then consider individual stocks once you feel more comfortable.

To become an investor, you need to start by learning the basics of investing. This includes understanding the various types of assets, such as stocks, bonds, and real estate, as well as investment strategies like value investing and growth investing.

It's essential to determine your risk tolerance early on, as this will help you make informed decisions about your investments. Taking on greater risk can lead to greater returns, but it also means there's a higher chance of losing your original capital.

To invest in stocks, bonds, and other securities, you'll need to open a brokerage account with a reputable broker. This is a straightforward process that can be completed online.

Investing is different from trading, so it's crucial to determine your investment goals, such as your target return and time horizon. This will help you choose the right investments and make informed decisions.

Here are the basic steps to get started with investing in stocks:

Keep in mind that investing is a long-term game, and the key to building wealth is to add money to your account regularly. This will allow the power of compounding to work its magic over time.

To start investing in stocks, you don't need a lot of money. In fact, most major investment accounts don't have a minimum, or the account minimums are extremely low. You can get started with little money, and many brokers allow you to buy fractional shares of stocks and ETFs.

The first step to getting started is to choose how you want to invest. You can open an investment account with a brokerage firm, or you can use a robo-advisor that can help you manage your investments. Some brokerages allow you to invest with fractional shares, which means you can choose a dollar amount and invest that despite the fact that the share price might be greater than what you have.

Next, you'll need to open an investment account. This is a straightforward process that can be done online or over the phone. You'll need to provide some basic information, such as your name and address, and you may need to fund your account with a deposit.

Once you have your account set up, you can start deciding what to invest in. This can be a daunting task, especially for beginners. However, a good starting point is to consider investing in a diversified portfolio of stocks and bonds. This can be done through a mutual fund or an ETF.

Finally, you'll need to determine how much you can invest. The key to building wealth is to add money to your account over time and let the power of compounding work its magic. You can start by setting a budget for your stock market investment and then sticking to it. A good rule of thumb is to start small and gradually increase your investment over time.

Here are the 4 steps to get started:

1. Choose how you want to invest

2. Open an investment account

3. Decide what to invest in

4. Determine how much you can invest

Choosing a brokerage or robo-advisor is a crucial step in investing in the stock market. You'll have to decide whether you want to use a traditional brokerage or a robo-advisor, which can provide automated investment management.

There are several types of investment accounts to choose from, each with its own benefits and requirements. For example, a Roth IRA comes with significant tax benefits, while a standard brokerage account does not. You'll need to have some personal information available, including your social security number, and it may take around 20 minutes to open the account.

Some popular brokerages include Charles Schwab, Interactive Brokers IBKR Pro, and Public, each with its own fees and account minimums. For instance, Charles Schwab charges $0 per online equity trade, while Interactive Brokers IBKR Pro charges $0.005 per share with volume discounts. Public, on the other hand, charges $0 in fees.

Here are some of the top brokerages and their ratings:

You can access premium investing services through The Motley Fool, which offers stock recommendations and portfolio guidance.

The Motley Fool's premium services can help you make informed investment decisions and grow your wealth over time.

Some robo-advisors have low fees, while others offer free financial advisor consultations, so it's essential to compare them to find the best fit for your needs.

Most robo-advisors charge around 0.25% of your account balance, but it's still a good idea to shop around to find the best deal.

You'll need to add money to your investment account and then purchase investments to see your money grow in value.

You can get matched with a financial advisor for free through NerdWallet Advisors Match.

You have several options when it comes to investing, so you can really match your investing style to your knowledge and how much time and energy you want to spend investing. You can spend as much or as little time as you want on investing.

You can choose from a human investment professional, a robo-advisor, or go for a self-managed option. A human investment professional is a great "do-it-for-me" option for those who want to spend just a few minutes a year worrying about investing. It's also a good choice for those with limited knowledge of investing.

A robo-advisor is another solid "do-it-for-me" solution that has an automated program manage your money using the same decision process a human advisor might – but at a much lower cost. You can set up an investment plan quickly and then all you'll need to do is deposit money, and the robo-advisor does the rest.

If you want to select your own stocks or funds, you'll need a brokerage account. This "do-it-yourself" option is a great choice for those with greater knowledge or those who can devote time to making investing decisions.

Here are some popular brokerage firms to consider:

You'll have to have some personal information available, including your social security number, and it will probably take around 20 minutes to open the account.