Investment objectives

USA Today (Society for the Advancement of Education), Jan, 1996

When you invest, do you tend to "swim against the tide," always taking a point of view that is opposite from your counterparts? If so, you may be a contrarian investor, points out Joseph P. Lizzio, vice president for investments, Dean Witter Reynolds, Garden City, N.Y. Conversely, do you always check the asset value or book value of a stock to determine if it is attractively valued? That could mean you're a value investor. Which of the following investment styles is closest to yours?:

Contrarians buy stocks that others shun. Such stocks often have low price/earnings ratios, are usually in an out-of-favor industry, trade close to book value, and have small institutional ownership. According to contrarian opinion, when people say the market is going up, it means they are fully invested and have no additional purchasing power. To the contrarian opinion, when people say the market is going up, it means they are fully invested and have no additional purchasing power. To the contrarian, this means the market is at its peak. When people are predicting a decline, the contrarian believes they already have sold out, and thus the market will go up>

Cyclical investors purchase stock in companies that will benefit from a change in the economic cycle. Earnings of these firms go up and down with changes in the business cycle, so these stocks are often valued on "peak" earnings - or the amount the company can be expected to earn at the peak of the business cycle. Examples of cyclical industries are housing, automobiles, and paper.

Growth investors choose stocks tend to outperform slower growing companies. However, such companies tend to reinvest earnings and thus pay little or no dividends.

Income investors look for stocks that have moderate dividend yields and prospects for dividend growth. A steadily growing dividend reinvested into additional shares of a high-quality stock can compound returns nicely.

Value investors seek stocks that appear inexpensive based on the assets the company has today. The theory is that, if a firm can earn just average profits on assets, the share price should stock market is at high valuations, value investors often become contrarians.