The key to better returns? Be like Spock
2020 delivered for investors, despite the chaotic madness that consumed the globe. But as we begin to kick start investing season for 2021, you have to wonder - what can I do differently this year to improve my returns?
Marcus Padley of Marcus Today believes there are five things all investors must be conscious of this year. Investing doesn't come down to macro risk, it's not about geopolitical tension, it's not even about whether we experience a bull or a bear market. According to Padley, the most important quality an investor can possess is passion. An investor without passion is like a drummer without sticks.
In this wire, Padley goes into detail about how investors need to be thinking in 2021, all whilst answering the question - what can an investor do to improve their returns?
What could retail investors do to improve their returns?
Give it away If you are running a 20- to 30-stock portfolio, the chances are your performance is average with a typical combination of success and failure. These days it is extremely easy, through exchange-traded funds in particular (ETFs), or a big industry fund, or a managed fund, to achieve the average, and, in a quiet bull market, (pray we get it) average could be good. There are legions of retail investors who really shouldn't be bothering to do it themselves, possibly don't even enjoy it, may not be interested in it, see it as a necessity rather than a passion and would be better off living life without the stock market “job” disturbing the force.
If that's you, just stop for a moment, consider your results, your stress, passion, interest, time and the opinions of your partners, and ask whether it's worth it.
Because the truth is you don't have to do it. These days there is plenty of low-cost, low activity, low volatility, long-term compounding return investments just waiting for you to click on and rid yourself of all those wasted evenings and weekends being an amateur stock-picker. If it's not fun, intellectual, social, a hobby, give it away.
Learn to sell. There are still too many retail investors who think investing is about buying and holding. It's not. It's about making money in any stock on any timeframe you can. It's about exploiting the stock market, not buying it and then doing nothing.
Stocks move constantly. That's the opportunity. You can't exploit that unless you learn to sell. It’s an activity, not a one-off decision.
Use every tool. Don't be blinkered. You cannot trade a stock on fundamental analysis. The book, The Intelligent Investor, is not the golden bullet a lot of people believe it to be. Sure, knowing the quality and reliability of a company, and if it is going to endure, is a key piece of information, but its share price is made up of value and sentiment, not value alone, and sentiment can dominate for long periods.
Use both fundamental and technical tools, any tools that help the cause, don't be blinkered.
Use inside information Not illegal inside information, your own inside information. What industry do you work in? What companies are succeeding in that industry? What is happening that you know about? Which of your friends is succeeding in which industries? Are there listed stocks exposed to that industry, that “tide”.
One good idea a year is a good year. It is the ten-bagger that creates all the performance. You must be on the look-out for ideas. Knowing the way the tide is flowing is not a prophecy you have to make, it’s a fact and it’s all around you. So, ask yourself: what do you know?
Be Spock Emotion is a killer. It undermines every logical assessment of a stock. If you 'love' or 'hate' stocks, you have lost your objectivity. If you care about whether you have lost or made money, your decision-making process is flawed. The only thing that matters is what the share price is likely to do tomorrow, next week, next month, next year. That requires logic, not faith or hope. Investment is about probabilities and logic, anything else is utterly irrelevant.
Start 2021 on the right foot with Marcus Today’s key stocks for the coming 12 months. CLICK HERE to access for free.
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Patrick was one of Livewire’s first employees, joining in 2015 after nearly a decade working in insurance, superannuation, and retail banking. He is passionate about investing, with a particular interest in Australian small-caps.
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