The following was first posted on the Motley Fool Stock Advisor board Becoming an Investing Master on 5th Feb 2007.

Like you I am an investor, though perhaps a few pages ahead. The following is a quick brain dump which I hope will be of some benefit.
I have been investing for 20 years, though only started concentrated on it about three years ago. If I was to start over I’d do the following:

1) Sit down and think very hard about what sort of person I am. What is my outlook and philosophy? What sort of investor do I think I’d like to be? What do I want to get out of investing? What is my risk tolerance and what sort of reward do I want?

2) Start reading those books. Each one will present a different investing style and each one will seem compelling and perhaps the way to go. This is because there are many paths to investing success. This is why step one is important as you want to know which style is good for you.

3) Today I would recommend having your money sitting in a money market account, rather than putting it in an index fund or investing it straight away. If the markets were hitting new lows or greatly undervalued I’d recommend investing in an index fund while waiting to make your selections.

4) Start slowly. I think you are subscribing to too many newsletters at the moment as you may get swamped by all the ideas. SA has a good blend of recommendations. Just like the books these stock ideas will seem compelling. Patience is my number one tip. There is no need to rush. There are always other opportunities. Buy what you are comfortable with and perhaps initially try to keep your portfolio very focused. You may decide later you’d prefer a Lynch style portfolios with lots of companies, but initially it is good to get to understand a few companies well. Spread you purchases over time, there is no need to get fully invested in any kind of timeframe. This is a long game so don’t take your time,

5) Long Term Buy Hold (LTBH) vs Trading. The two main points against trading have always been the trading costs and the taxes. If you are investing in a tax free account then taxes don’t really concern you and trading costs are low these days so that is not a big issue either. By trading I mean a style like discussed on the BMW Method board, where they buy a company when historically undervalued and sell when historically average or above. So trading as in holding for a year or more. If you are not in a tax tree account then tax can be a real killer. People sometimes argue that it is better to pay taxes along the way than have a big tax hit later on. This overlooks the power of compounding. So if you can find good companies to own for a long time then you’ll be well placed.

6) When you make a new purchase compare it to what you already own.

Gotta go
Hope that is of some help.
Dean Morel

No related posts.