Remember when Monty Python taught us how to play the flute? You blow in one end and run your fingers up and down the outside. Becoming the world’s best stock picker is similar — you buy shares that are going to go up a long, long way and then sell them for a big profit. What, you want more than that?
Well, even after several decades, I’m still amazed when I come across investors who are looking for the big one where they can get in at just the right time and perfect their exit for a massive profit. Some of these “get rick quick” seekers have been at it for a very long time: they remind me of habitual gamblers, convinced their horse-racing or poker millions lie just around the next corner.
So no, I can’t tell you how to become the best stock picker in the world — if I knew that, that’s who I’d be. But I can tell you how you can learn from the best, and how to set your sights more realistically.
Modest gains, consistently
Second things first — you should not be chasing Monte Carlo size wins, because you really don’t need that to secure your future through investing in shares. All you need to do is beat the averages, and keep on doing it consistently. If savings accounts offer 2% interest, and the FTSE 100 is managing, say, 5% including dividends, then all you need is 6% a year to be beating the majority of the country’s professional investors.
If you don’t think you can do that, then just invest in a FTSE tracker (and be pretty much guaranteed to beat any other realistic form of investment over the long term), but I hope to convince you can can do better.
Can you really beat the professionals? I reckon you can, because you have different goals in mind — you’re after long-term success and you don’t care about the year-by-year ups and downs, isn’t that so? Most of the pros need to focus on the short term in order to attract new investing customers, and so they work too hard on trying to look good at the end of each year — and that leads to excessive trading as they want to be seen to be holding the recent short-term winners, and to higher costs.
Who’s best?
If you want to seek inspiration from from professionals, look to the likes of Warren Buffett and Neil Woodford. If you do, you’ll see them buying into top-quality blue-chip shares, often high dividend yielders, when they’re undervalued with the intention of holding them for the long term — in fact, Buffett’s favourite holding period is, famously, forever.
The other skill is to become devoid of emotion and be honest enough to admit your mistakes as soon as you identify them and dump the shares. Again, that’s one of Warren Buffett’s key strengths. He doesn’t make many mistakes, but when he does — like buying into Tesco just before its crash — he owns up to it clearly and loudly.
Anyway, tune in next week when I’ll teach you how to secure the US Republican nomination, and how to keep the eurozone together(!)
