Portfolio Update come Investing Philosophy
It has been a couple months since I provided an update on the Fusion Fund Portfolio, so this is way overdue. [Update will be posted tomorrow] I’ll try to provide more regular updates in the future, but honestly I have better things to be doing and I imagine you’ve got better things to be reading. The main reason for my neglect of the Fusion Portfolio is I have been concentrating a lot more on my real portfolios over the last couple months.
Before I get to the update let me tell you about a realisation I had last year. My Motley Fool CAPS score has been reasonably consistent despite little effort or maintenance on my part. Since I started CAPS back in mid 2006 I have consistently been in the top 20% and for the last year or so in the top 2%. My CAPS picks are only partially reflective of my own portfolio and I think I’ve only ever once entered a pick at the same time as I purchased the stock. I’ve used CAPS more as a watchlist. Yet the results have been good and I feel reflective of my real portfolio, which gets considerably more attention.
I don’t play CAPS like the leaders, who pick hundreds if not thousands of companies and concentrate on racking up big scores. I see no point in doing something that can’t be implemented by any investor and is unlikely to provide me or others any help. Besides I’ve got better things to do, like pick my nose. Despite my lack of attention and using CAPS more as a watchlist I still perform better than 98% of investors. Yup, most investors suck and that is why I recommend market timing into index funds is the most sensible path for the majority of investors. The one thing my CAPS and real portfolios have in common is my investment philosophy. While it is difficult to implement my style of investing in CAPS, I have tried to emulate it.
Beliefs CAPS Has Cemented In Me
As always these are my views and what is right for me. The key to investing is to find what is right for you. As Joel Greenblatt says, don’t trust anyone over thirty and don’t trust anyone thirty or under. That especially means do not trust a broker or a tip you get from a website, this site included.
Investing in not about picking individual stocks. Investing is about money, risk and portfolio management. That is so frigging important I’m going to say it again; to be a successful investor you must focus on money management, risk management and portfolio management.
Do not Buy and Hold or even buy to hold. Replacing the word ‘and’ with ‘to’ is a self-delusional trick. A key to success is Buying to Sell. Too many investor focus all their energy on the buying individual stocks. Which is strange as profits come from selling. That is where investors should focus more of their energy. BUY TO SELL. Before you buy a stock you should be planning when you will sell that stock. In the long run all stocks revert to average performance. For the upside I use a matrix systems to help me decide when to sell, this is based on future returns. Check out the matrix I posted yesterday for SAFT for a starter on this.
Look for singles not home runs. Because of Peter Lynch’s fantastic contributions to investors bookshelves there is an improbable focus on ten baggers and hitting the home runs. No-one can ever take anything away from Lynch’s amazing record, but if you own a thousand stocks then naturally you’ll get a few ten baggers. Yes one big win makes up for a lot of losses and that is a valid investment path for very risk tolerant and knowledgeable people. Neither you nor I am Peter Lynch and we don’t have an investment team supporting us and analysing our thousand stocks. I prefer to go for singles. Just like in baseball and cricket there are many ways of getting singles in investing and you are much less likely to get out. Once you have a single then you need to remember to let you winners run, but only if it is still has an excellent risk/return profile. Also, please please please consider using stops to lock in your profits.
Money, risk and portfolio management are all huge topics which deserve their own posts. If you are a fundamental investor then I encourage you to diversify your knowledge and see what the dark side has to offer on these topics. All three are a primary focus of traders and technicians. Those investors have a lot to offer on the subject. I recommend Jack D. Schwager’s Market Wizard series as a great starting point.
I have clearly gone a little excited about this topic and I’ve now realised that the end of the quarter is tomorrow, which is a more appropriate time for the Fusion Portfolio Update.
Related posts:
I haven’t yet finished reading all of the above, but let me make one brief comment:
After only a few decades of reading, thinking and making mistakes, I have jumped to the following investment conclusion:
1. The very best investment returns come from investing directly (mainly the top 300 Aussie stocks or the equivalent in your country) in the Buffett, Graham, Fisher et al manner. This is pretty much a full time job to do properly.
2. The next best is to build your own indexed fund
3. The next best is to use a public low cost indexed fund
4. The next best is to use an active low cost managed fund
Nothing else is worth considering (assuming you are in this game to make money…..)
Thanks for sharing BuffettFan. I agree investing directly can be a full time job. It has been for me for the last five years. All great advice, though I disagree with number four. When choosing an active fund the cost should be of little consequence. Past performance and pedigree of the manager should be the main consideration. Their experience, age, style, track record and so on.
I hope you stick around and share your experiences. If you feel like writing an article on your investing lessons learnt I love to publish it.
Regards – Dean
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