These tips should prevent a portfolio nightmare extending into 2012.
So another year starts and, with our minds refreshed following the festive break, it's time once again to do battle with the market.
Only this year, we might not be feeling all that positive.
You see, the 5.5% drop registered by the FTSE 100 during 2011 translated into some hefty losses among us private investors. My own small-cap portfolio was thumped last year and a quick search shows losses of up to 45% were registered by Fools brave enough to provide year-end reviews (here, here, here and here).
So what can we do to prevent 2012 becoming another nightmare year? There are no guarantees, of course, but I think adopting these three simple suggestions should help you beat most other private investors if the market falls further.
1. Think a lot more about selling
One of the most instructive articles I've ever read on investment is The Loser's Game by American indexing guru Charles Ellis. To cut a long-ish story short, the article outlines superbly how successful investment -- at least for us amateurs -- is often more about avoiding major losers than picking great winners.
So while this time of year is ripe for share ideas and everybody else is busy thinking about what to buy, I recommend spending more time evaluating your current holdings and considering what to sell. As Charles Ellis wrote in his article: "Almost all of the really big trouble that you're going to experience in the next year is in your portfolio right now."
Indeed, further economic/eurozone/banking problems during 2012 may once again highlight weak links in your portfolio. I suspect those holding Lloyds Banking (LSE: LLOY), Thomas Cook (LSE: TCG) or Cable & Wireless Worldwide (LSE: CW) last year would agree.
2. Limit your portfolio/trading
One of the brave Fools posting his 2011 portfolio review concluded: "Doing nothing is invariably more profitable... A lesson that I am continually reminded of but, suffering from the 'human requirement' to be doing something, I seem to struggle with this aspect of investing."
So, as well as calculating your actual percentage gain (or loss...) for 2011, determining what you would have gained (or lost...) had you done nothing last year may be quite an eye-opener.
Indeed, billionaire investor Warren Buffett has for years banged on about punchcards and limiting your portfolio to only your very best ideas. By adopting such a careful share-picking approach yourself, I'm sure you can cut out all the punts, gambles and flyers that so many other private investors like to dabble with -- and lose on -- during times of portfolio boredom.
I'm sure it's no coincidence the best portfolio write-up I could find -- up 4% last year -- involved what appears to be a largely passive strategy. Of the 36 shares this portfolio held at the start of the year, just two names were replaced with new selections.
3. Don't become distracted by the gloom
Now there are plenty of worries in the market at the moment, including the fate of the euro, the US debt ceiling, Chinese house prices and further tension in the Middle East. Problem is, trying to accurately predict how all those troubles will pan out is far beyond most of us time-strapped investors.
And even if you could foresee where the world in general was going this year, you'd still have to pick the right companies at the right price. Legendary fund manager Peter Lynch sums up my advice best by recounting: "I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes."
Fact is, there are always good companies selling at attractive prices in the market, no matter how many persuasive macro predictions can be found on the bulletin boards. For instance, Shire (LSE: SHP), Next (LSE: NXT), ARM (LSE: ARM) and Tate & Lyle (LSE: TATE) registered 30%-plus gains throughout 2011, while a further 35 blue-chips recorded positive gains as well.
My final bit of advice, then, is not to become distracted by Europe and so on, and end up with too little time -- or inclination -- to pinpoint the bargains that are bound to arise during the next 12 months!
Attention! Hunting for stock-market winners is one of the Ten Steps To Making A Million. You can download your copy of the Fool's latest wealth report for free -- with no further obligation!
More on the markets, shares and the economy: