It’s never too late to learn new habits or, indeed, break bad ones. The stockmarket is always changing, always challenging and always providing both opportunities and pitfalls. The turn of the new calendar year is an opportune time to reassess financial targets, clear out the decks and set yourself up for, hopefully, another profitable year.
Here are my 5 tips to start the new year out on the right foot.
1. Temper your expectations
I don’t necessarily want my no.1 tip to be a downer but it’s important to put the recent market performance in perspective. With a return in excess of 20%, 2019 was a seriously good year for equities, the best in a decade since the 32% post-GFC rebound of 2009. Over the past 30 years there have only been five other occasions where the market has risen more than it did in 2019. Particularly, taking into account record low interest rates and low dividend yields, it would be unprecedented for the market to replicate, or exceed its performance of 2019.
2. Critically review your portfolio
If you’re the type of investor that is not actively managing your portfolio on a daily basis, it’s improbable that individual stock positions have not moved over time such that a handful of successful stocks comprise a significant proportion of your investment portfolio. At Cyan, we apply what we call a ‘Clean Sheet’ philosophy which goes as such: if we were to construct our fund today, from scratch, what would that portfolio look like? If it differs from what we currently own, then we make adjustments to get towards our ideal portfolio. An investment fund should not be determined from what has happened, it should reflect what you believe is going to happen. Drive returns by looking forward, not backwards.
3. Clean out the junk
We do not believe there is any merit whatsoever in hanging onto losing investments. Adages including,“I’’ll stick them in the bottom draw”, or“I’ll wait until they trade back to what I paid for them” are born out of emotional denial rather than investment logic. If a stock has disappointed, sell it, move on, and realise the capital loss.
4. Actively seek out opportunities
The back end of 2019 saw a cavalcade of new issues land on the ASX boards; there were over 30 new IPO’s in the final two months of 2019 and countless secondary capital raisings. Sift through these new opportunities as we believe there is no better place for astute private investors to find the next winner. Pricing and financial history is limited, broker coverage is scarce and hence pricing inefficiencies can be considerable.
5. Hit the ground running
Domestically there is an understanding that not much really happens in the markets until after Australia Day. Certainly corporate activity is dormant until the end of January. However this lack of liquidity and scarcity of market participants can lead to investment opportunities; new information is not disseminated as thoroughly nor is it as critically analysed as it would be at other times of the year. Additionally, liquidity is light which can lead to increased volatility. It is the one time of the year in which you can compete with fewer market participants and potentially set yourself up for a solid 2020.
I don't agree with no.3 I bought Altium in 2015 at $4.89 and sold it months later at around $4 feeling very disappointed with a 20% loss. should have held on !!!!!!!!
I don't agree with no3 either. If the company still has strong financials and a strong team behind it, don't let a temporary share price decline scare you into selling
Yes, with respect to point no. 3 I should clarify that my philosophy relates to companies that have disappointed fundamentally and/or operationally rather than those that experience a price decline even when their businesses remain sound.
Good clarification on point 3. While it takes continued analysis, it's certainly possible to distinguish between junk stocks that should be cleaned out and others that are moving through reasonable business cycles. You will never get it right every time, although if your analysis is solid, then you will at least be basing your decisions on logic and not emotion, or arbitrary targets.