Christian mentioned that there are a lot of different kinds of investor behaviour types.
So-called Value investors look at a company’s current valuation on the market, as well as a number of financial indicators to uncover companies that might be undervalued by the market. Value investors would buy any company that seems undervalued hoping for a market correction and increasing share value. That’s when value investors might sell their shares and make a profit.
So-called Growth investors focus on technology-driven companies developing a novel product offering for promising market segment. Growth investors typically look for companies that might offer significant growth in the next few years. As such, they buy shares on the private or public market and sell them once the company has reached is growth targets. Obviously, if they have 1% of a company that is valued 100M$, and if the company is growing at a 50% growth rate, then, just a 2 years later, the company is valued at 225M$ and their 1% share has more than doubled in value.
Hedge Fund Investors
They typically buy shares for a relatively short period of time to capture quick profit. When they see that the share value has increased by a few percentage points in the course of a few weeks, they sell their position and make a profit.
Activists often belong to the same family of investors as hedge fund investors or can be high net worth individuals. However, unlike hedge fund investors, they want a seat at the board in order to bring change to the company’s strategy. It is important to note in Europe and the US, the intention to influence control of the company will trigger specific mandatory public disclosures. If the company endorses, the proposed activist pushed strategy, and if the share value increases, then, activist investors sell their shares and make a profit.
Unlike all the other investors above, they do not buy the share of a single company per se but rather they buy a bundle of shares coming from many different companies that share some quality in common. As an example:
- one could buy shares from the French stocks index made up of the top 40 publicly listed companies in France (CAC 40).
- One could also by the NASDAQ index made up of leading western technology companies listed on the NASDAQ stock exchange.
- One could buy companies from North America and Europe, or from the emerging economies.
- One very well-known index is the MSCI world made up of over 1500 constituents in these three main geographies.
Value investors, growth investors, hedge investors and index investors are the main types of investors behaviour.