These simple but effective tips will make you a much better investor.
My regular morning bike ride helps me do 3 things…
1) Get out of the house and into the fresh air.
2) Keep relatively fit.
3) Listen to some of the great content freely available on the web.
For example, David Kuo hosts The Motley Fool's weekly podcast. You may know David from his TV appearances on BBC, Bloomberg and Sky, from his regular radio slots on BBC London and other stations or from reading his commentary and analysis on the FT and other newspapers and magazines. Or you may simply have run into him in a West End Chinese restaurant around lunchtime.
David is a very humble man, yet incredibly funny, happy and knowledgeable. He has his downsides, as he supports Chelsea Football club, a truly unfathomable decision to me as a QPR supporter. No-one is perfect.
This morning I listened to David's most recent podcast, an interview with renowned trader Alpesh Patel. As usual, it was an enlightening podcast, full of great tips from one of the UK's engaging, passionate, entertaining and knowledgeable investors.
You can subscribe for free to MoneyTalk, the Fool's weekly investment podcast, by clicking here. Or, if you want to read the full transcript of the interview with Alpesh, click here.
I picked up some very interesting tips from listening to Alpesh, my favourites being…
1) Discipline
The world's leading traders from New York and London and Chicago all agreed that discipline was the key ingredient for success.
It makes perfect sense. Many investors don't even have a strategy, let alone the discipline to execute on that strategy. Warren Buffett also agrees, saying "The most important quality for an investor is temperament, not intellect."
2) Time
We all know time is valuable. Many people say they'd like to work less and have more time for family, going to the football, the pub or the gym, but many don't simply do it.
Time spent on your investing activities is no different. Why spend 100 hours a year generating a £10,000 annual profit when you can probably achieve similar results in a fraction of the time? Says Alpesh, "…most people, they're getting about £10 to £5 an hour, they're almost getting minimum wage return on their portfolio investments."
3) Formulaic Investing
Following on from discipline and time, it follows that Alpesh's preferred stock-picking strategy is formulaic. Using software cheaply available on the internet, he says you can ignore all the excitement that a hot share tip heard at the local pub might bring, be disciplined and effectively have someone else do all the work for you.
Key ratios Alpesh looks at include price earnings ratios (the P/E), price earnings growth ratios (the PEG), earnings growth, year-on-year revenue growth, and for income-generating companies, dividend yields.
It sounds simple, but makes perfect sense.
4) A Concentrated Portfolio
Again, following on from the above, Alpesh says "Luckily you won't have that many names thrown up, but neither would you want them, because ideally you want a portfolio with maybe 12 to 14 stocks in it, not 100, like the funds, because if it's got a 100, I mean how bad can a stock picker be that he picks 100 stocks, because he can't even narrow it down to 12 decent ones?"
5) Private Investors Are Mugs
Alpesh didn't actually say those words, for he's far too polite. I'll say them instead.
But Alpesh did say this "…no businessman would ever let you pick stocks the way most private investors do, which is willy-nilly, a bit of rumour here, a bit of, oh there's an annual report sitting on the floor there, there's a newspaper rumour over there, there's a bit of Investors Chronicle over here, there's a bit of website over there -- could you ever run a business like that? -- of course not."
He went on to say "If it's only going to cost you a couple of hundred quid a year, far better to have invested that couple of hundred pounds a year to let somebody else do the work, as you would in a business, than try and do everything yourself and end up taking so much more of your time."
The Foolish Bottom Line
Time and discipline are the two recurring themes running through the podcast. Making investing profits is easier said than done, and if you don't have a strategy, and don't have the discipline to follow that strategy, you'll find yourself spending too much time making too little money.
Instead, consider having someone or something else do the hard work for you. Fund managers may not be the answer, as Alpesh says about them "I don't think they're that bright… they have large internal costs and they've got an incentive to advertise well, not to perform well" so perhaps you're better off looking at a newsletter service or investing in some software package.
If you're looking for the former, the Motley Fool's own Champion Shares PRO may be right up your alley. This real money portfolio is currently closed to new members, but if you click here, we'll alert you the instant it re-opens.
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