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Are you investing the right way?

Tristan Harrison

Investing is a very broad, general term that can mean different things to different people.

To some people the word investing could mean buying cryptocurrencies or day trading shares. I’d hope most readers would agree that this isn’t investing.

I think there are several different ways to invest in shares that can work.

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There are some highly effective fund managers that buy shares when they think they’re undervalued, by using a valuation model, and then sell when the share reaches that valuation. It could take a relatively short amount of time to reach that valuation. WAM Capital Limited(ASX: WAM) is excellent at employing this strategy.

Some investors just like to invest in shares due to some sort of tailwind and not overly worry about valuation in the short term. Qualitative investing does have its place and I can understand why investors are attracted to the ageing tailwinds of Challenger Ltd(ASX: CGF) and Ramsay Health Care Limited(ASX: RHC).

Other investors like to take a really passive approach and just have a broad stake in all the shares of the share market through an index fund. There are dozens of high quality exchange-traded funds (ETFs) on the market for people who just want to invest in shares and then not put any more time into it. A couple of options are Vanguard MSCI Index International Shares ETF(ASX: VGS) and iShares S&P 500 ETF(ASX: IVV).

Another way is to just invest in a good portfolio of quality companies at good prices that have a solid future. Those quality companies can be great investments because of the compounding profit that their business generates. Costa Group Holdings Ltd(ASX: CGC) and Altium Limited(ASX: ALU) are generating excellent growth-on-growth.

Foolish takeaway

My point is that there are many ways to generate pleasing returns, but you need to know what your strategy is and how you’re going to achieve it. Pure speculation is not investing. Whatever you do, you need to be patient and allow your strategy to unfold. As a wise investor once said, the stock market transfers wealth from the patient to the impatient.

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Motley Fool contributor Tristan Harrison owns shares of Altium, Challenger Limited, and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ramsay Health Care Limited and Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.