How to keep your investment decisions simple

How to keep your investment decisions simple

What is the best way to invest?

 

There are many asset-classes out in the market for investments. One of the many investment avenues that allows you to accumulate wealth is stock investing. Stock investing is quite risky, but if done right, it can generate an income that will enable you to maintain or enhance your lifestyle.

There is no magic formula when it comes to the best way to invest money or the best stocks to buy. So I’m going to share with you Three Fundamental Tips to help make your investment decisions simple.

 

1. You Must Invest!

 

This is not negotiable! No waiting for market corrections etc. you will only ‘outsmart’ yourself and lose time.

Some people will just never invest in equity markets, the risk profile is deemed too high and the there is no preparedness to adopt tools or discipline to de-risk the experience. People with ‘skin’ in the game or those with a genuine desire to be so will hopefully benefit and better manage for the one thing that is inevitable and omni present, volatility!

Make no mistake volatility is your friend, expect it, embrace it, prepare for it.

This is why you are in the market in the first place isn’t it? To either take a position that the market will go up or even down. When you invest you are hoping you will be on the right side of the volatility. A stagnant, low risk market does not serve your purpose for being there. You are in the wrong asset class if this is your aim.

A more appropriate vehicle for you is called a Bank Account (Deposit of course!) of up to $250, 000 with an Australian Bank. This serves such a risk profile. See, even in the Bank you are at risk, the Australian Government will only guarantee up to $250,000 of your savings if in the unlikely event that a Bank goes broke, anything else in excess of this you lose. Yes, only $250k of your money is safe!

What we need is a strategy before investment not after, and especially an exit! A legitimate reason for the investment. Something to be referred to and modified throughout your assets investment term but not drifting too much fundamentally from the logic that instigated the investment. This may sound simplistic (good!) but if there is no compelling (ie: quantifiable) reason to do something then don’t do it. We are simply trying to be right disproportionately more than we are wrong. That’s all this is about. There are always factors unforeseen, we are in it now but opportunities still exist. Get active!

 

2. Change Your Mentality and Get Match Fit

 

A good way to start is with one’s mental approach to investment. We need to adopt the attitude that we are investing in business. This seems logical, right? You may think so, but is this what you actually do? And what I mean by that is this, if you have the mentality you are buying into a business which in reality you are, then perhaps your view of investment opportunities may look decidedly different.

You see if you have already bought business (i.e. shares. I am trying to change your psychology here by now calling shares business) your risk management focus of your investment should be directed to any fundamental changes within the business (shares) you own. And believe it or not lessor the share price. I don’t even know what my actual share prices are trading at on a daily basis? Of course I know how the wider market is performing through it’s various indexes, but the actual share price is low on my level of ‘care’ factor.

You see I am trying to short list businesses that will be around in the many months, years ahead. And with my passive investing approach, share fluctuation does not faze me if I am assured nothing negative has fundamentally changed with the business. This is my portfolio management, and it is ongoing.

 

Investing is not gambling

 

There is a difference between investing and speculating (gambling). To clarify, I am not only advocating positions in businesses that are in a growth, income stage, or mature. But if we have exposure in what we deem the speculative space you need to ask yourself what is the compelling reason for doing so?

Have a look at the chart published on Firstlinks website in 2019. It clearly shows that the majority of companies are, and have always been, high risk speculative gambles. As I write this, the actual numbers are moving considerably due to pandemic impact.

paying dividends companies

*Source – Firstlinks

A company may be embryonic with no cash generation in the near term and you can still invest, but please ask yourself ‘Why?’ Is it unique, have IP, licensing, patents etc. something that can drive potential into reality? And by reality I mean cash!

So it is a not so subtle reality check for anyone before you go about throwing your hard earned at a ‘hot’ sector or stock don’t you think?

Again we must invest but know what you are up against and identify your compelling reason to do so.

So to my way of thinking 66% of the market is not even business. They generate no cash. That is why they are on the ASX, the Bank would not lend them money. They are relying on you to do this! Capital raisings, share purchase plans, rights issues etc.

 

3. Keep It Simple!

 

Many people’s instinct will be to Google the ‘best stocks to buy’ or try to imitate a complex approach based on technicals to achieve returns above the benchmark. However, by applying some fundamental, logic, observation and practicality into your investment decisions, investors can do their own research and come to their own conclusions.

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New to investing? Read about How to keep your investment decisions simple.

Disclaimer:
This article does not take into account the investment objectives, financial situation or needs of a particular person or entity. Before acting on any investment strategy or advice you should first consult with your current ASIC accredited investment professional or seek out a compliant investment professional for such. 

About The Author

Patrick Carter

Patrick is a Director of Benchmark Commodities Pty Ltd. He is a Financial Markets (ASX) & Agribusiness investment specialist. Providing investment, acquisition and risk advice to wholesale investors & agribusiness clients for some 20 years. Corporate actions, listed & unlisted being areas of primary focus. Previously he has held executive roles with CBA (Agribusiness), Clime Asset Management, Ord Minnett, Stock Market Investor's Group & AWB Ltd.