Vehicles of investment
DO NOT EVER SACRIFICE EXPERT ADVICE ON MONEY ISSUES Long-term successful investment gives you above average returns at acceptable levels of risk, with the best chance of avoiding permanent loss of capital.
AI’ve recently added an amount to my Absa share account. I want to start a shares portfolio but don’t want to rush or buy on emotion. I’ve looked at the consensus from several websites. How should I proceed? The problem with most investments is investors don’t know what to expect. No one can predict the future, not even a financial advisor. The biggest role your advisor should assume, is to ensure you have an investment portfolio that can withstand all the storms of the financial markets.
Long-term successful investment is not the investment that grows the fastest over any one season, but one that gives you above average returns at acceptable levels of risk, with the best chance of avoiding permanent loss of capital.
Financial analysts are the only individuals who should consider capital allocation into individually selected stocks. Anyone who lacks this ability to accurately determine the value of a financial instrument over the long run, doesn’t know what to pay for it. The consensus determines the price.
If it’s favouring a stock, it’s expecting a good outcome from that business, which is already in the stock price. Investors make their money from being contrary or ahead of the consensus. Steinhoff’s diminishing share price is a reminder to investors of the risks involved in any equity investment and that no business is too large to fail.
The same principles of good governance, strategic management and healthy cash flow are essential to all businesses’ survival. It remains prudent that no stock holding in your investment portfolio should exceed over 10% of the overall weighting. Benjamin Graham, author of The Intelligent Investor, mentions that it’s prudent for most investors to have a reasonable amount in a fixed-interest instrument.
During market crashes, this portion of your investment portfolio encourages investors to stay invested and continue with the original investment plan.
Actively managed 100% share investments aren’t for everyone and 100% index-tracking investments are only for “blackbelt” investors. 1. Don’t lose money. 2. Price vs value. Don’t overpay for investments. Use welltrained analysts with above average track records to value financial instruments. SA has fantastic asset managers with such records. No gain from a self-managed portfolio compensates for the despair from permanent loss of capital. 3. Diversification sounds overrated until businesses fail. 4. Create distance between your emotions and your sphere of influence. Use a competent investment advisor to act as a soundboard for your investment ideas before investing/ disinvesting. 5. Watch out for the consensus. The consensus view is reflected in the price. 6. Stock-picking. I think it’s now a stock-picker’s market, rather than one with passive investment solutions for the average investor.