As ye sow so shall ye reap.
Monty Don's love of nature shines through as he tackles any gardening task with his clear-sighted, honest approach. By adapting his 'freestyle' tried and tested gardening methods to investing, I've become more focused and relaxed in the management of my own portfolio.
Problems
Investing can be a soulless activity at times, trawling through reams of accounts, updating watch lists and staring at a PC screen for hours on end. Eventually, I reached the point where I knew the price of everything but the value of anything.
However, one day while gardening, I realised that there is another, more holistic way of approaching stock market investing. I hope that it will make me more successful as an investor -- the passing seasons will reveal if that is so.
Here are a few lessons I've learnt...
Porfolio structure
Just as every gardener has aims and abilities that are unique to them, so you should naturally tailor your portfolio to reflect your individual areas of interest, personal circumstances and ultimate ambition.
At the core of my portfolio garden is a mix of hardy perennials -- long-term stocks that should prosper regardless of the general economic circumstances, such as Tesco (LSE: TSCO).
During the dot-com boom ten years ago, I made the mistake of choosing spectacular annuals that shot up and disappeared too quickly; shares such as Rage Software and Recognition Systems. Filling a portfolio with these is fun for a short time, but far too risky.
I still have a few high tech, small cap growth shares in my portfolio, such as Vislink (LSE: VLK) and Intelligent Environments (LSE: IEN). However, these ones are less like annuals and more like my parrot plants -- they've often disappointed in the past but I think they are due to flower in the next couple of years.
Markets
Like gardens, investments are dependent on an environment that constantly changes. Whereas gardeners look to the seasons, investors look to economic and market cycles. You need to spend time to be aware of where we are in a cycle and how this will affect your stocks.
For example, the performance of shares that are highly operationally geared (i.e. many of their costs are fixed) should shoot up coming out of a recession, while they'll be hit hard heading into one.
Preparation
It sounds easy but preparation is the key to achieving good results.
Research can be likened to tilling the soil and choosing the seeds you buy wisely. It's no good scattering your money around on 20 to 30 companies of which you have very little knowledge. It's better to concentrate on a few core companies that you know a lot about.
Patience
Of course, patience is key to successful long-term investing. That way the miracle of compound interest has time to grow an oak tree from an acorn. I imagine Warren Buffett, if he could be prized away from his desk laden with Cherry Coke, would be a very capable gardener as he has bucket loads of patience.
Avoiding pests
It's also as important to perform regular maintenance on your portfolio, weeding out underperforming stocks and searching for pests that can damage them.
Some of the worst pests I've come across are aggressive activist investors. They can use up valuable management time in attempts to take control of a company without paying a takeover premium. Even if the company in question manages to fight off their attack, its growth is affected for some time to come. Another irritant is the freeloading non executive director who is mates of the chief executive.
Final lesson
The most important lesson though, is that there is no short cut to ensuring a bountiful harvest. It requires thought and hard work and is best done by those who have a love of such work.
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Chris own shares in Tesco, Vislink and Intelligent Environments.
