Its Vital to set goals for yourself,it motivates and drives us to reach our targets and keeps us focused on making great investments to achieve better returns.
Here are the top ten 2016 New Year’s resolutions for an ambitious value investor:
In this article
1. Revise your investing approach
Are you still happy with the approach that you followed in the past or is it time to tweak it up a bit?
People change over time, affecting our overall attitude towards risk and investing. The amount of risk, you were willing to take on in 2015, might not be suitable for you in 2016.
You should revisit your approach. Familiarise yourself with the principles of your strategy just to remind you why you decided to follow your approach. Doing so sets your mind right back on track and ready for the year ahead.
If you feel you are ready to take on more risk for more reward or you want lower volatility even though it might mean fewer rewards, change your risk-profile by allocating your assets differently.
2. Allocate your assets for minimum risk and maximum reward
Asset Allocation is the practice of spreading one’s money across a number of different investment vehicles to reduce risk while generating desired returns.
Knowing how to allocate your assets are extremely important if you want to achieve your desired returns. The key to doing so is dividing your money across asset classes of differing risk, market cap, industry, geography and currency. In doing so, you will have lower risk instruments offering safety and stability, which in turn counterbalances the higher risk associated with equities.
Before you start allocating your assets, you need to determine your investor profile. Investor profiles differ in the amount of volatility and percentage of returns of each profile. The investor profiles, you can choose from, are: cautious, mindful, confident or bold.
3. Diversify
Avoid having your eggs in one basket. If you haven’t diversified your portfolio yet, 2015 is the year to do so.
It may be possible to make great long-term investment returns from one stock, but it is equally possible to lose everything. You have a 50% chance of success, which is similar to gambling. By allocating your assets correctly, you will automatically be diversifying your portfolio. Diversification buffers your portfolio against market risk, lowering the volatility of your portfolio.
4. Don’t follow the herd
You are investing your hard earned money, not money from the masses. So why follow what others are doing? Rather do the opposite. Taking a contrarian approach has in most cases proved to be the best approach.
As a value investor, you should welcome market fluctuation and see it for what it’s worth. If the masses panic, selling all their assets it creates buying opportunities for us.
Set out to only make decisions based on fact not fiction fabricated by the media. You might have made mistakes in the past, but this year you will only make decisions based on facts and proven data.
5. Create a value investing checklist
I have learned that having a checklist by your side helps making informative trading decisions much easier and effective. By marking off all the points on my checklist I can confidently say my trading choices weren’t motivated by emotion, but solely by cold hard facts.
Investing can be a tough emotional journey, which many investors fall victim to. People panic when the market fluctuates and sells or buys at the wrong times.
Make sure you make the best decisions by checking off your value investing checklist.
6. Manage your portfolio effectively
With regards to portfolio management, less is more. The less active you are, the better your returns will be. Circumstances do change, and so you need to know how to adapt your portfolio to those changes. You also need to calculate the ideal slice size model for your equities.
Have you ever asked yourself the following:
- How exactly should you divide your equities section?
- How many stocks should you own? How much should you invest in each holding?
- What should you do once those investment ‘slices’ start to grow?
- When is the best time to sell a stock?
- When should you react to news of an impending recession?
7. Reinvest your returns for compound interest
Receiving returns on your investments are lovely but don’t spend it this year, rather reinvest it.
Compound interest is often called one of the most powerful concepts in finance. It can significantly increase investment returns in the long run. Reinvesting your returns in strong businesses is the best way to spend your returns and keep your money growing. You make interest on top of your existing interest.
8. Only invest in value
How do you know if you are truly investing in value? Fundamental analysis.
Fundamentally analysing a company allows you to determine the value of its assets.
9. Never stop learning
The most important resolution of them all.
You can never have enough knowledge of the stock market. There will always be something new to learn. Stay ahead of the curve by reading and learning from the investment gurus. It’s great to learn from their past mistakes so you won’t fall in the same trap.
Doing research and comparing data will be the only way you will be able to make sensible investment decisions. Don’t phase yourself by analyst opinions and so forth, rather read financial statements and quarterly reports. Always remember knowledge is power.
10. Take action
Please stop talking and take action by Starting to Invest as soon as 2016 begins.
Happy new year 2016,wishing you many more returns in 2016.
Stride
