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Content: The second
investor who believes that markets make mistakes in the aggregate may look at
technical indicators (such as mutual fund cash positions and short sales ratios)
to find out whether the market is over bought or over sold and take a contrary
position. The third investor who believes that market mistakes are more likely
when information is absent may look for stocks that are not followed by
analysts or owned by institutional investors. It
is worth noting that the same investment philosophy can spawn multiple
investment strategies. Thus, a belief that investors consistently overestimate
the value of growth and under estimate the value of existing assets can manifest
itself in a number of different strategies ranging from a passive one of buying
low PE ratio stocks to a more active one of buying such companies and
attempting to liquidate them for their assets. In other words, the number of
investment strategies will vastly outnumber the number of investment
philosophies. Why do you need an investment philosophy? Most
investors have no investment philosophy, and the same can be said about many
money managers and professional investment advisors. They adopt investment
strategies that seem to work (for other investors) and abandon them when they
do not. Why, if this is possible, you might ask, do you need an investment
philosophy? The answer is simple.