How to make long-term investments in a stock market? A generic strategy for investors

He, Guanming; Li, Zhichao; Shen, Dongxiao

Abstract

Against the backdrop of increasingly fierce industrial competition nowadays, firms tend to have substantive business risk and/or information risk, increasing the estimation risk and limit of arbitrage for investors in their short-term investments in a stock market. It is thus important for investors to hold a long-term horizon for at least part of their investments in the stock market. This paper aims to introduce a long-term investment strategy that is practically feasible and potentially valuable to investors. To this end, we first develop a parsimonious model in which we identify the major determinants of a firm’s value. This model is used to select high-value firms from each industry for further fundamental analysis and valuation. We next expatiate on how to perform strategy analysis, accounting analysis, financial analysis, and prospective analysis, and therein apply the residual operating income valuation model, in the best possible manner to further value the selected firms and their long-term investment potential. Lastly, we expound the strategy of forming and adjusting a long-term investment portfolio in a way that potentially maximizes long-term portfolio return.

Citation

He, G., Li, Z., & Shen, D. (2024). How to make long-term investments in a stock market? A generic strategy for investors. Review of Pacific Basin Financial Markets and Policies, 27(1), Article 2450002. https://doi.org/10.1142/S0219091524500024

• Journal Article Type: Article
• Acceptance Date: Oct 11, 2023
• Online Publication Date: Mar 15, 2024
• Publication Date: May 17, 2024
• Deposit Date: Oct 13, 2023
• Publicly Available Date: Mar 15, 2024
• Journal: Review of Pacific Basin Financial Markets and Policies
• Print ISSN: 0219-0915
• Electronic ISSN: 1793-6705
• Publisher: World Scientific Publishing
• Peer Reviewed: Peer Reviewed
• Volume: 27
• Issue: 1
• Article Number: 2450002
• DOI: https://doi.org/10.1142/S0219091524500024
• Public URL: https://durham-repository.worktribe.com/output/1791461