It is an exciting time to be an investor, as our businesses release fresh ﬁnancial accounts to market. While mining stocks were the poster children of 2016, observers are watching to see if the fundamentals of these businesses and their future prospects have caught up to the recent price run. And will the sell-off of many ‘‘high-PE/high-quality’’ stocks in the second half of 2016 present an opportunity to snap up great businesses at a bargain?
As a backdrop, global macroeconomic concerns have lingered over our market like a London fog over the Thames. The good news is that economic conditions are still accommodative, and investors who have the ability to be selective and conduct appropriate due diligence on businesses stand to beneﬁt.
As disciples of a bottom-up ﬁnancial analysis approach at Stock Doctor, we tend not to listen to the negative “noise” or speculative “enthusiasm” that leads many to make irrational investment decisions.
Here are some proactive steps you can take towards successful portfolio management during this important time.
It’s always best to remind yourself of why you are investing in the ﬁrst place. Be it either for capital growth over the long term or to fund your immediate lifestyle needs from income, reminding yourself of “why” will help when you need to decide “what” to do next.
Newer investors can be tempted to jump into a company before it reports, particularly if the price has had a good run. While the pay-off can be substantial if you happen to get it right, you risk signiﬁcant falls within a short time frame if you misstep. It may be prudent to wait until a company reports. At Lincoln, we’ll analyse the numbers ﬁrst before we decide whether to invest.
Too many investors hold on to fundamentally inferior businesses for too long. This easily occurs when the fundamentals, including a company’s ﬁnancial health, have deteriorated and/or a short-term speculative bet has gone wrong. You need to remain disciplined and sell these stocks. The good news is that you’ll be freeing up cash to invest in new opportunities and avoiding the cost of holding on to underperformers.
The good news is
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Aim for once a week to perform your entry and exit trades, as your companies release their latest reports. Rebalancing will reduce the risk of having too much exposure to any single business by taking proﬁts off the table, and allow you to seize an opportunity to buy a great business at a cheaper price.
Applying a methodical and disciplined approach to the reporting season is the best way to make an unemotional and fully informed decision on your portfolio. If you can’t dedicate the time to this essential task, while letting the fundamentals be your guide, you will miss out on a period that will often make or break the returns you can potentially achieve.