Putting it all together
The steps necessary to become a successful private investor can be summarised as follows -
- Devote at least four hours a week to investment.
- Read a primer.
- Read three further books, including The Zulu Principle, as shown in detail in recommended reading.
- Consider joining an investment club to widen your circle of competence and add to your overall strength and know-how. Within every club there is always a ‘faster gun’ – someone who knows more about investment than the other members and can add knowledge of the group. Also, in a club, it is easiest to stick to a discipline and to gain moral support from other members. Last, but not least, the cost of newsletters and necessary investment services like Company REFS can be shared to reduce the expense to a very affordable level per member.
Anyone interested in joining an investment club or forming one should contact ProShare. In particular they should obtain a copy of the ProShare Manual, which explains everything they need to know about investment clubs.
- Apply The Zulu Principle by concentrating on a particular approach that suits your temperament and abilities. I recommend growth shares, but many investors prefer high-yielders or recovery stocks. Another way of applying The Zulu Principle is to concentrate on a particular sector or sectors and become expert in a relatively narrow area of the market. Develop a method of investing that you can hone and temper with experience. Look at it like improving a golf swing. Once your swing (method) is right, your game (portfolio performance) should improve.
- Read the Financial Times daily if possible. If you cannot spare the time, at least, be sure of reading the Saturday edition which summarises the week’s activities and gives most share prices.
- Subscribe to the Investors Chronicle and MoneyWeek and read them both carefully.
- As you progress obtain access to reliable investment information from a publication such as Company REFS.
- Keep in close touch with your portfolio through a reliable online service such as Digital Look.
- Do not spend too much time worrying about the market as a whole. Investment is the art of the specific and selection is much more important than timing. If you find that your investments are causing you sleepless nights, sell a few shares down to your sleep level. When you select the shares to be sold, choose the most speculative and those with the highest PEGs. This will improve the margin of safety of your residual portfolio.
- Run profits and cut losses. This way your losses will always be small and profits should be big. Running profits is also very tax-efficient.
- If you can spare the time try to attend an investment class or seminar. The cost should be looked upon as a kind of one-off capital investment that should help to improve the performance of your portfolio over a long period.
- Measure your performance against the market at least once a month and preferably more frequently. There will be times when the market beats you, so do not be phased by a few bad weeks. Keep a running check year by year. If, after a few years, you are failing to beat the market, you would be advised to delegate the investment of your portfolio to a professional manager with a good track record, through the medium of a unit or investment trust.