fearless investor

How to become a fearless investor

The information in this article is market commentary only and reflects Lincoln's views and beliefs at the time of preparation, which are subject to change without notice. To obtain up-to-date information, please contact us.

Is today’s investing playing field fair for the average investor?

With company reports out of the way and a few weeks to go before annual general meeting (AGM) season, investors may be reflecting on the bigger issues relating to their portfolios.

With millions of dollars changing hands every day through machine trading, doubts as to whether executive remuneration and their behaviour is aligned to the success of shareholders and scrutiny of companies’ commitment to continuous disclosure, it is indeed a valid question.

Our belief at Stock Doctor is that much of this is simply a distraction, and wrestling control from such influences is achievable. Everyone, including the smallest of investors, can play in the share market.

From time to time analysts and experts will look for public displays or anecdotes to support their view, emphasise a point and/or motivate investors to act.

One such example is the recently installed Fearless Girl statue staring down the Charging Bull on Wall Street. The statue was installed in March this year on International Women’s Day. It was commissioned by exchange traded funds (ETF) provider State Street Global Advisors to advertise an index fund it had created which focuses on companies with a high percentage of women in senior leadership positions.

This brilliant piece of marketing went viral when launched and has seen the statue’s installation extended from a week in March to February 2018.

This ingenious piece of street art generated a myriad of different emotions and impressions for visitors and has become a tourist attraction in its own right. Everyone’s interpretation is different, which is not surprising when you look the emotive image of a confident 1.3-metre statue, staring down an aggressive and very imposing 3.4-metre raging bull.

Standing up to market

To us, the girl represents the regular everyday investor. Though alone and potentially vulnerable, she is standing up against the beast, which is the market. A position that only as recently as a few decades ago seemed impossible.

For years, retail investors were blindly herded into companies without fundamental quality. Their inevitable failure would be explained by brokers with shrugged shoulders and rueful smirks passing on responsibility as “one of those things”.

Frustrated by such responses, this led to the rise of the modern day DIY investing movement, with investors challenging the old-world definition of delivering advice.

So how does one become akin to the Fearless Girl, confident enough to stand up to the “the Street” and make the informed decisions necessary to construct and manage a successful portfolio?

4 steps to becoming a fearless investor

  1. Know your objective; growth or income, short-term or long-term. Whatever your investor objectives, knowing “why” you invest makes it easier to know “when” to get out. There will always be “buying opportunities” and the people who disagree will look to sell. The truth is both investors may be right when their decision is assessed against their individual objectives.
  2. Understand the risks; all investments carry risks, but in the share market they are elevated. Investors must understand any active risks as they can have a detrimental effect on long-term performance should they materialise. Take the known active risk of Telstra’s dividend being cut before its announcement and the poor financial health of Paladin Energy when it was a $5 billion company as prime examples. Next time you get a “hot tip”, be sure to qualify it against the active risks and make your decision accordingly.
  3. Have an investing plan; you need a framework that will facilitate confident and informed decisions. More importantly, it should allow you to block out the emotion, market noise and external influences that if left unchecked would result in irrational decisions. Rather than worrying about what you can’t control, focus n what you can and follow a defined strategy with discipline.
  4. Fill your knowledge gaps; when you decide to become the portfolio manager of your life savings, the stakes go up. Essential tasks such as the analysis of company reports and daily monitoring of events cannot be compromised. Other than the time and passion to complete this task, you need to identify services and/or tools that support your investing by providing you with the information you need and the confidence to make your own decisions.
Published Tuesday, 10 October 2017
www.afr.com. | Financial Review

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