There are many types of angel investors.
Let us take a look at the different types.
What Are The Different Types Of Angel Investors
The first type is what we call an institutional investor.
They are usually well-known financial institutions, such as mutual funds, pension funds, endowments, and similar entities. They will generally try to invest money into the hottest companies every few months.
They basically buy and hold, in effect, for life. They will buy and sell stocks weekly, if at all. They will try to use what they know about a company, based on their own research. For the most part, they will buy and sell stocks every week or so.
High Return Investments
They are looking for high probability and high return investments, so their approach is very different from a “day trader.” Day traders, by their very nature, are looking for the cheapest stocks to purchase. Institutional investors usually have more of a hands-on approach.
They will not shy from actively purchasing stocks, but not as frequently as the day traders. They are looking for stocks with higher than average risk and less than average reward.
The second type is the individual investor. Now I will admit, there are very few of us who fit into this category. But if you are one of them, here are a few rules to follow.
1. Be very disciplined. Every time you consider purchasing a stock, ask yourself if it is really right for you. If it isn't, don't purchase it. If it is, know why you are buying it and be disciplined. Know your own strengths and weaknesses.
2. Research your stock thoroughly. Read the annual report and the 5th column. Watch conference calls and read annual reports. Find out if management is on the same page as you are, and do they have the people and process to execute the plan.
Do they have any “preferred stocks” or “inherent securities” that give them an advantage. Know your risk tolerance, your tolerance for risk, and know what you are willing to risk. I t is okay to have some risk if the reward is worth the risk. You need to know your own strengths and weaknesses.
3. Keep an eye on the stock 24/7. Look at charts daily, weekly if possible, and look at fundamentals at the same time. Use trailing stops. When the stock begins to break out of a trailing stop, sell. I like to set a trailing stop of 20% of the price.
This allows you to take “position insurance.” If the stock goes up much past 20% of the price, then you get to take the position. Be disciplined. Sell if your stop is triggered. Be patient.
It is okay to have some risk but be disciplined.
4. Know how to use leverage. Understand that if you want to take a short position, you need to be prepared to short the stock. If you want to take a long position, you need to be prepared to buy the stock, not just buy it because some sucker paid you a lot of money to do it.
Know what your positions will do, what your stop will do, what your target will do. I believe in “targeting” your stock, a strategy that I have written about before. Targeting is using technical analysis, indicators, and the trend to determine if you should buy or short the stock.
Targeting might be your best bet if you don't have the stomach for a long flight, and are looking for quick profits. Find the technique that works for you. Be disciplined. Know your own strengths and weaknesses.
Before you buy a stock, know all the conditions under which you will enter the position.
Once you know the conditions, you can buy the stock.
You might consider using a “stop-loss” as well. It takes some of the emotion out of your decision-making. Here's how it works. If you want to sell a stock that has been on a roll, you know when to get out.
This is hard to do if you are on a roll. I prefer to tell you to “get out if the price moves away from your target.” A lot of people don't like this type of guidance. But as a whole, I believe this is more efficient. It works.
It doesn't mean you always get out, of course, but it does reduce anxiety.
When you have a goal or a game plan, you are more likely to play your game. This is your job. Don't get frustrated if you don't hit the target every time, as long as you are getting better.
And when you are consistent, even in losing trades, you will start to see consistent results.
I think there is a big difference between getting excited about a stock that is trading at $80 and one that is trading at $60.
You don't need to hit it every time, but you can't stay in a trade if it is not going higher.
The first thing you need to do is find your game plan.
Then you can focus on getting yourself and your emotions under control. That is not easy.
As I've said before, if you want to be a winner, don't buy anything that has a price guide.
Then you can keep your emotions in check. You can focus on building a successful portfolio. That is where the money is. So this is What Are The Different Types Of Angel Investors can be.