Investors do not buy on impulses or tips: Invest where you have a competitive advantage based on your ability to analyse a company, not on a wim or tip from a friend, newspaper or broker.
Investors avoid ‘pass-the-parcel’ shares Shares that have a great deal of upward momentum, which is sustained by people thinking that they can sell out at a higher price because current excitement will keep pushing the share forward (rather than based on fundamental qualities) are to be given a wide berth. Investors don’t close their minds to disconfirming evidence Once a share is bought there is a natural human tendency to avoid looking at or ignoring evidence that does not confirm our original investment thesis; we have a psychological aversion to the idea that we made a wrong decision. But it is important to keep an open mind; to be receptive to disconfirming evidence. ‘Don’t be too stubborn about your views but don’t lose all your conviction. Ideally, your conviction level should be around the 50 per cent level (where 0 per cent equals no conviction and 100 per cent means you are so convinced you would never change your view).’ (Anthony Bolton) Investors accept cr e to edit.
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Click hereo along with the crowd: If you are comfortably doing what the crowd is doing then you are probably too late.
‘When nearly everyone else is cautious about the outlook, they are probably wrong and things are going to get better. Equally, when very few are worried that is the time to be most wary…..the stock market is an excellent discounting mechanism. By the time everyone is worried about something it is normally largely in the price.’ (Anthony Bolton) “You're neither right nor wrong because other people agree with you. You're right because your facts are right and your reasoning is right - that's the only thing that makes you right. And if your facts and reasoning are right, you don't have to worry about anybody else.” (Warren Buffett) While it is important to do your own analysis and stand your ground, it is equal important to listen to the market – it is often right. “The intelligent investor shouldn’t ignore Mr Market entirely. Instead, you should do business with him – but only to the extent that it serves your interests.” (Benjamin Graham) Put too much weight on the macroeconomic outlook Look beyond the economic projections for the next year or two. Quite often the short-term can look terrible just as the bottom in the stock market is reached; and it can look great just as the stock market reaches its peak and is about to fall. Many gr to edit. Don’t get fixated on the price you paid for shares: What you originally paid for shares is totally irrelevant to your decision on what to do now. This is especially true if you have to take the decision to cut losses, which may be psychologically difficult.
Undertake fresh analyses regularly, e.g. when annual reports are published. Look at your revised intrinsic value estimation based on updated information and compare that with current market price. Is the share now fairly priced or under-priced? Do not try to guess where the market is heading in the short run Timing the market – getting in just before a rise and getting out just before a fall - is incredibly difficult. There are a handful of occasions during an entire investing career when you might feel strongly about the market’s likely direction. But even then do not put large bets on that view. Even those with decades of experience great investors conclude that the direction of market over the next few months cannot be forecasted with any consistency. To try to time th..... The detailed generalist: It is necessary to maintain a reasonably good knowledge of a wide range of industries and businesses. This helps to get up to speed on a firm or sector within a few hours, permitting a rapid build-up to expert knowledge as the need arises.
It also helps provide perspective on companies and industries you are already committed to. I try to improve my general knowledge every day by reading the Financial Times, the Economist and by analysing companies. Know yourself Know your strengths and weaknesses, and compensate for them. Given your limitations and talents you should choose an investment style that suits. I have chosen to be a value investor. I would be useless as a growth investor because I lack the skills to estimate where Tesla or The Hut Group will be in five years from now. But I can look at proven earnings, proven strategies and make judgement on the likelihood of continuation or restoration. I can look at assets and make a judgement on the likelihood of re to edit. The seeing eye: Investment is likened to chess by Anthony Bolton in that it is necessary to see a couple of move ahead of competitors. Think through the secondary effects of a current change.
For example, everyone can immediately see that a rising dollar against the pound is good news for UK-based manufacturers exporting to the US. What is not so obvious is the impact on the oil refinery industry given the fact that oil is priced in US dollars. And then there is the impact on inflation a few months down the line, which in turn has a impact on interest rates, which can affect company profits. Lateral thinking is often required to see things differently leading to the development of perceptive vision not in the grasp of linear thinkers. Hunger for analysis You need a curious, en Rational thought: Being able to think logically and objectively is vital. Being able to go back to first principles and boil down a complex story so that its essential elements become upper-most in your mind is required; see the wood for the trees.
A common-sense approach is required when something seems too good to be true. If the supposed ‘good’ comes out of complex structures that you cannot comprehend then stay clear. For example, while everyone else is jumping in, I can’t see where the supposed value of Crypto comes from, so I avoided the whole circus. A measured sense of your own abilities Do not get overconfident. For example, do not get an over-inflated opinion of your genius when you have been through a good period - some of your best performing shares could have been picked just as easily with a pin! On the other hand, do not underestimate your abilities by focusing on a poor short-run performance. Over short periods of time it is very difficult to differentiate between luck and judgment. Even highly skilled investors need time for the probabilities to work in their favour. They also need to get used to having underperforming years. Many great investor had periods of three years in a row when they under-performed. Temperament Warren Bu |
Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk investing is about making the right decisions, not many decisions.
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