This week, we take a step back and look at how we manage our own stock portfolios, distilling out the principles that have allowed us to achieve market-beating returns over the long-term. We believe it boils down to three primary skills – your ability to manage your temperament, your ability to manage your portfolio as a whole, and finally your ability to choose good quality companies.
- Managing yourself
- Avoid emotional investing and acting on impulse, whether it’s from greed or fear. Have a plan and respond to market conditions accordingly
- Be humble and realise you can’t know everything when it comes to an investment. Collaborate and share your thinking, and be open to challenge. Don’t get too proud of yourself over your winners, or too despondent over your losers – learn and move on
- Invest in a way that allows you to sleep at night and have peace of mind. The point of investing is to be free of money worries, not to be the cause of them
- Managing your portfolio
- The key to balancing risk and reward is how you allocate your portfolio across different asset classes, different sectors and different stocks (this article from AdventuresinFI has an excellent framework for considering whether you should sell an investment)
- Diversify your stocks across different sectors, market caps and where possible, geographical revenues, and yet don’t have so many stocks that your portfolio starts to resemble an index
- A particular investment is not suitable for everyone. Structure your portfolio based on your financial goals and your appetite for risk, not someone else’s
- Managing your stocks
- Do your own due diligence! Understand what you’re investing in, and build conviction in the companies that you own. You’re investing in companies not trading in tickers
- Invest in the companies whose mission you love and want to support with your investment $. It’s easier to stay the course when your portfolio is aligned with your values and interests
- Use a framework to assess companies and businesses objectively, so that you can maximise your chances of identifying the winners of the future
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