A key part of any investment strategy is to keep a close eye on potential purchases.
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In recent weeks, I've been pondering what shares to invest in next, and we've had a few ideas -- but we've also reflected on the fact that we don't need to rush into anything and we can take as much time as we like. In fact, as investors, we're always faced with a clash between wanting to be fully invested so that our money is working to its maximum benefit, and being careful not to rush into investments too hastily.
In addition, we're also faced with another clash -- between holding on for the long term, and selling and buying something else. The Foolish message has always been that investing for the long term is by far the best approach, as it keeps trading charges to a minimum and reduces the temptation to lose money by following fad and fashion. In short, it's surprising how many short-term investors end up buying high and selling low -- the exact opposite of what we want to achieve.
So, once we're fully invested, do we sell something so we can buy the latest hot stock? No, of course not. But at the same time, if we see something that really does look like a bargain, do we stubbornly let it go because we're adamant that we're holding on to our current shares forever? No, that would be ideological nonsense.
What "long-term buy and hold" really means to me is that we should buy shares that we initially would wish to hold for the long term (though, even then, there's nothing wrong with the occasional short-term punt for a bit of fun, providing we understand that's what it is and don't do it too big or too often). But once bought, that doesn't mean we should should stubbornly hang onto our current holdings through thick and thin.
Anyway, what I'm really talking about is setting up a watch list of candidates that we can keep an eye on alongside our current holdings. It will achieve two purposes -- firstly, to help us choose the final additions to our portfolio, and later to keep a track of possible alternatives should fortunes shift. So what's going into it?
What to track
We've looked at general consumer goods suppliers, and though I think they're a bit expensive right now, we should keep an eye on them, so I'm putting Unilever (LSE: ULVR) into the list. I've also been looking at engineers lately, because I think the sector is generally undervalued. In fact, I've been considering adding BAE Systems (LSE: BA) to the portfolio for a little while, but the recent news of a possible merger with the pan-European corporation EADS, a constituent of the Euronext index and listed in Frankfurt and Madrid, means that needs rethinking. But it can certainly go in the watchlist. I'm also quite impressed by Ricardo (LSE: RCDO), which I looked at earlier today.
What else? Well, for long-term investors interested in dividend payouts, utilities are pretty safe payers, so I'm going to add United Utilities (LSE: UU) to the list -- I actually don't think it matters a great deal which of the big ones we choose, as their valuations tend to follow each other, and having one in our watchlist will help us track the industry.
So, here are the first few entries in our new watchlist...
|Company||Price||Forward P/E||Forward dividend|
Can you see what it is I like about BAE? Anyway, that's just the first four, and there we're not really restricted in the number companies we can keep an eye one. So we'll certainly be expanding this list -- please feel free to make your own suggestions, below...
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> Alan does not own any shares mentioned in this article.