ASX reporting season puts the spotlight on Australian companies you may be invested in.
It presents an opportunity to truly assess your investments’ financial health and strength.
In Australia, it happens twice a year (in February and August), and there is plenty of noise around companies’ results and what they mean for investors.
This is where Stock Doctor really shines and cuts through the noise better than most by allowing near real-time analysis of the underlying financial reports of every listed company on the Australian Stock Exchange (ASX).
As we enter 2023 facing rising interest rates, record inflation and a slowing economy, we thought it timely to take a different approach rather than yet another article on the latest reporting season financial results and talk about some of the most common traps we often see for investors.
These are some of the most common and consistent mistakes we have seen investors make over our 30 years of investing. Investing is hard enough, so avoiding these hazards as you revisit your investment portfolio this reporting season could save your long-term financial goals.
Perhaps the most difficult to overcome – is a strong craving or desire. From an investing point of view, it comes in the form of favouring a particular stock due to hype, euphoria or simply the fact that its share price has quadrupled. Investing with this much emotion can blind an investor – resulting in too high a concentration on high-risk financially unhealthy businesses that ultimately tend to disappoint and leave investors in the red. Many have experienced this with Buy Now, Pay Later (BNPL), Bitcoin or other meme stocks over the past few years.
The anecdote? Stay the course, remain disciplined and use Stock Doctor to help you identify and avoid unhealthy businesses through its proprietary financial health model.
Want a logical and consistent framework for share market success? Download the Golden Rules White Paper.
In other words, excessive consumption. In investing terms, we may engage in gluttony by overindulging in one or two stocks within our portfolio. This leads to overconcentration risk and can significantly reduce risk-adjusted returns of your portfolio. Generally, clients will diversify their portfolio with at least 15 stocks. Another form of gluttony is allocating excessive funds in a rising market, only to take them out when markets fall. The antidote to this type of gluttony may be to take advantage of an oversold opportunity in high-quality businesses and, oppositely, be prepared to take profits on investments that have run too hard too fast.
To help avoid gluttony, have an investment strategy that gives you a framework to guide your decisions on when to buy, sell and hold.
This emotion forces investors to jump into stocks hoping to make a quick return. Stock tips seem to be everywhere nowadays – in the newspaper, on social media or with that friend or co-worker with “an inside tip”. But what we can tell you from our 30 years of investing experience is that the most successful investors are the ones that invest in quality companies over the long-term. They conduct due diligence and invest in the numbers.
There is no easy way to do this on your own without spending hours and hours on research unless you focus on a financial health model.
To create a firm foundation for confident and informed investment decisions, download this Financial Health White Paper.
This is defined as the absence of interest, but there is no time to be lazy when it comes to investing, especially during reporting season.
Laziness can mean investing without proper due diligence on a stock. It could also mean neglecting your portfolio – a common challenge especially when markets retreat and investors lose interest or confidence in what to do next. If you find yourself in this situation, there are solutions.
Imagine having access to a quantitative model and a team of analysts to do the leg work for you and cast their eye over all 2000+ ASX listed stocks during the reporting season. All that’s left for you to do is spend an hour a week monitoring your portfolio so you can keep track of it all in real time.
That is what Stock Doctor does. Give it a try with a 14-day free trial.
Over the long term, every investor will experience the wrath of a volatile share market. In the past year alone, we’ve seen economic uncertainty, wars, inflation, and rising interest rates. It’s enough to make even the most experienced investor disheartened. It is important in these times to remember that markets move in cycles. Down years can (and do!) happen, hence the importance of separating the facts from the noise and not letting emotions dictate your investment decisions, as this can often lead to irrational behaviour.
Have an investment strategy in place so you don’t hold onto stocks for too long or sell them too quickly.
Now is not the time to look at what everyone else is doing or follow the crowd. Most investors will speak about their winners, not their losers. Many speculative stocks can rally quite strongly only to collapse and burn when their fundamentals do not hold up. Bitcoin was a popular investment idea, but it has fallen far and fast from its peaks. So did the Buy Now, Pay Later segment. Do not focus on what others are doing but rather deploy your investment strategy that aligns with your objectives. Then select from a portfolio of high-quality stocks, such as the Stock Doctor Star Stocks knowing that your portfolio will better withstand challenging economic conditions.
Extreme pride is hubris, such as self-confidence, arrogance and selfishness. Investing is not only about selecting the right stocks to buy but also about knowing when to sell. When a stock no longer fits your investment criteria, or aligns with your sensitivity to volatility, then it may be time to sell. This can be the hardest decision for long-term self-directed investors. But again, here, it comes down to having a disciplined investment strategy (exit and re-entry strategy) and not letting your pride get in the way.
Stock Doctor allows you to invest in the numbers, so you are armed with the right tools and knowledge to make informed and disciplined decisions.
Avoiding these seven sins of investing will go a long way to helping you achieve your long-term financial goals this reporting season and beyond.
Unlock your share market investment potential with a Stock Doctor membership.
To discuss the future of your investments in detail, book in a free consultation with a Lincoln representative.
To discuss the future of your investments in detail, book in a free consultation with a Lincoln financial expert.