12 Wacky (and Not-So-Wacky) Investment Strategies That Actually Work

By Tim Lemke on 25 September 2014 1 comment

There's no single right or wrong way to invest. If there was, we'd all be insanely rich and would not need to read great websites like this one.

The most tried-and-tested approach to investing is to buy and hold. In other words, get into the market as early as you can and don't exit until you absolutely need the money. (See also: 5 Investing Basics That Can Make You Rich)

But not everyone follows that approach. In fact, some people have some truly off-the-wall strategies for growing their portfolio. Here's a look at some of the most common investment approaches, plus a few other more unusual strategies.

Value Investing

In simple terms, this is all about finding stocks that you believe are underpriced. If you have faith in a company's underlying financial strength, you should not be overly worried about its stock price. In fact, you may view this as an opportunity to purchase shares of a great company at a bargain. The key to value investing is to have some understanding of a company's financials and the true reasons why Wall Street may be undervaluing it. Warren Buffett is a big proponent of value investing, and he's done pretty well for himself.

Dollar-Cost Averaging

This is a long-term approach to investing that is founded on the premise that it's foolish to try and time the market. If you invest a specific amount of money on a consistent basis — $200 per month, for example — you'll be able to buy more shares when the market goes down and fewer when it goes up. This makes your portfolio less vulnerable to major market drops, but perhaps it's biggest attribute is that it allows disciplined, steady savings.

Lump Sum Investing

This is the counterargument to dollar-cost averaging. A 2012 report from Vanguard suggested that placing a lump sum of money into the markets will result in a higher return than dollar-cost averaging (DCA) about two-thirds of the time. There are supporters in the lump sum and DCA camps, but both are based on three key principles: invest as much as you can, invest early, and invest for the long haul.

Contrarian Investing

This is very similar to value investing, but takes things a step further. Contrarian investors will not only look for value, but embrace stocks that are truly being beaten up by investors, analysts, and the financial media. In other words, if everyone else hates a stock, a contrarian investor will see it as an opportunity.

Top Down Investing

The premise behind this strategy is to look at the big picture of how the economy or overall markets will perform, then determine the sectors that should be expected to do well as a result. Then, you purchase shares in the best-performing companies in that sector. For example, let's assume that everyone is predicting mortgage rates to drop in the near future. A top down investor might then surmise that homebuilder stocks will benefit as a result. Thus, the investor will buy shares in the most well-regarded homebuilder.

Bottom Up Investing

This works in reverse to top down investing. Bottom up investors aren't too concerned with macroeconomic factors. Instead, they will perform rigorous research about individual companies, and will usually look for companies with specific criteria, such as a low price-to-earnings ratio or a certain rate of earnings growth. Bottom up investors generally believe that good companies are good investments, regardless of how the broader economy is faring.

Dogs of the Dow

In simple terms, this strategy calls for investors to find the 10 blue-chip stocks with the highest dividends relative to their stock prices. The theory is that dividends are a more reliable indicator of a company's true worth, and that companies with high dividends but low prices should be poised to rebound. There is some evidence to suggest this strategy can generate some nice returns, but it is not without its critics, who argue that it's no better than investing in the broader stock market. Moreover, this strategy can result in a lot of buying and selling of stocks, which may result in fees and taxes. (Forbes published this takedown of the strategy earlier this year.)

Reverse Glide

The conventional wisdom surrounding retirement planning is to gradually adjust your portfolio to be more conservative as you approach retirement age. This means moving away from stocks and into safer investments like bonds and cash. There is an inherent logic to this strategy, as no one wants to see their nest egg drop in value significantly just as they retire. But there are some advisors who say it's okay to stay aggressive with your investments even as you age. Rob Arnott of Research Associates claims that his analysis shows that someone starting in bonds and gradually moving into stocks will end up with a greater sum of money in the end.

So who's right? Well, this is a source of considerable debate, but most advisors say it's best to take your own risk tolerance into account when choosing a strategy. And, ultimately the goal should be to put aside enough assets so that either strategy leaves you enough to retire comfortably.

Sell in May, Go Away

This investment approach is based on the idea that the bulk of the stock market's gains take place between the fall and spring. The strategy suggests exiting the markets (or at least taking a more conservative posture) in May, and then returning in October or November. The reviews on this approach are mixed, with advisors generally saying that the stock market is too unpredictable for this to work on a consistent basis. Some observers say it works, but not in election years. Advisors do agree that this strategy of exiting and reentering the market can result in capital gains taxes and fees. So it's worth analyzing your own portfolio to determine whether it makes sense.

Invest Like a Billionaire

If folks like Warren Buffett and Carl Icahn have made billions in the stock market, why don't people just do what they do? There's an argument to be made that an easy way to wealth is to simply have your portfolio mirror that of the world's wealthiest investors.

Last year, Direxion created an exchange traded fund based on its "iBillionaire Index," containing 30 of the S&P 500 stocks most favored by billionaire investors. So, you can literally invest like a billionaire without a whole lot of effort.

You may do well with this investment strategy. After all, billionaire investors are often quite skilled at finding solid, long-term investments. But it's important to remember that they may have access to investments not available to us mere mortals, and their goals, risk tolerances and time horizons may differ.

Astrological Investing

Do you make decisions based on complex planetary charts and the signs of the Zodiac? Then this investing strategy is for you! There is, believe it or not, a devoted following to this investment approach, which assumes that the movement of the solar system affects the movement of the markets. Is it possible to time the markets based on heavenly knowledge? There's not a lot of of evidence that this is an effective approach, though the author of one astrological investing newsletter claims to have rightly predicted when the market would bottom out in 2009, according to Forbes.

Collectibles

There's always a segment of the population that seeks to find wealth not from traditional markets, but the buying and selling of collectibles and other physical items. From autographed baseballs to Star Wars figurines, there are huge markets out there for all kinds of things. One person is now trying to sell a single card from Magic: The Gathering on eBay for $100,000.

There's not a ton of evidence to show that investing in collectibles is any more lucrative than putting cash in the stock market, but we all seem to know of a guy who sold his comic book collection for a million bucks.

Do you follow any of these investment strategies? Another? Please share in comments!

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Adrian

I have done some great investments with information I got from thegoldinvestorguide ... worth checking out for investors!