Only one in twenty professional stock pickers beat the market.
Nineteen of twenty lag behind.
And we’re talking about highly-trained, well-educated financial experts.
Yet, year after year, reports like this one disclose that the vast majority of the so-called experts fail to deliver even average results. In the report, only 5% of mutual funds that invest in large U.S. companies had a winning record beyond three years.
Why is that?
And more importantly, what do investing gurus like Warren Buffett or Peter Thiel do differently that allows them to consistently beat the market?
Some might say there are simply luckier than everyone else.
You know that’s not true.
There’s no way that gurus are able to be that reliably right all the time… unless they have something the others don’t.
Experts in our circle, like Sam Volkering, Ryan Dinse, and Harje Ronngard also seem to have a sixth sense for investing.
They apply specific techniques in their own investing approaches that allow them to invest smarter and can make better returns than most.
They’ve graciously offered to reveal some of their techniques to Money Morning New Zealand readers like you.
Habit #1: Make a Game Plan
You need a strong foundation for your investing portfolio. That foundation is your game plan.
You should carefully consider your goals and from there, you can start to piece together the strategy for achieving them.
For example, perhaps you’re looking to ensure that your significant savings will be secure long after you’ve passed. You expect the market to cycle up and down before then… and you want that principal to be safe and secure.
You might want to follow a value investing approach.
That’s what Warren Buffett does.
He digs into the fundamentals of companies to make sure their financials are sound. He wants to invest in stable businesses that offer peace of mind rather than promises of exponential returns. He expects to hold these investments for the long-term.
In fact, Buffett says, “Our favourite holding period is forever.”
Maybe you’re more interested in turning a small sum into fortune through riskier plays.
Investments in tech or cryptocurrencies may be a better bet.
Resident techie Sam Volkering researches tiny companies on the verge of technological breakthrough. Many of these small and micro-cap firms are completely unknown to the mainstream… and Sam wants to make sure he’s invested before they hit it big.
He’s not looking for returns of 6% over 30 years. He’s after potential double and triple digit returns in a matter of weeks or days.
But with that comes a certain expectation of risk.
That’s what you need to think about when you come up with your game plan. Your risk appetite.
How much risk do you want to take on?
What level of returns do you need?
What’s your time horizon?
Habit #2: Get Organised
This may sound like a no-brainer, but you’d be surprised how many investors put hundreds of thousands of dollars into the stock market without getting organised.
You need to consider how, when, and where you move your money.
Make sure you know what fees are going to be charged and how that’s going to affect your returns.
You need to know how liquid these investments are going to be, in the case you need to withdraw or reallocate.
When I started investing, I’d put a little cash into this company, a little into that one, some into gold, and some into cryptos. It happened over a period of months.
After a couple years, I realised that I had accounts with at least four brokerages, three banks, and two crypto-wallets.
And because I had invested at different points in my life, the allocations were all over the place.
I held nearly 35% in crypto-currencies while my game plan was to take on only moderate risk.
It turned out fine (I locked in triple digits across the board), but it could’ve gone bad quick.
The lesson learned there was that you should always be able to “raise your helicopter” and see the whole big-picture view of your entire portfolio… and then reconfirm that the investments and allocations still match your game plan.
Habit #3: Research and Investigate
The easiest mistake you can make when investing is failing to thoroughly check out the investments you want to make.
Our experts vet and re-vet prospective investments before recommending them. They dig into the financials. They read about the chief officers.
In some cases, we’ll even go meet the leadership of the business beforehand to make sure they are the real deal.
Measure twice, cut once.
Yes, it can be a lot of work, but it’s worth it.
There’s nothing worse than reading about one of your held stocks crashing because the company couldn’t pay off debt… or the CEO was a poor leader.
You can avoid these things by researching beforehand.
Plus, this will give you the greatest advantage over your fellow investors.
Some advisors are merely client-facing touch points, employed to assure their customers that their money is in good hands.
Well, I hate to break it to you, but it might not be.
For example, ANZ’s highest-performing fund grew 9.8% in the last year. Compared to the NZX 50’s growth of 18.4% in the same time, you’re looking at nearly half of the returns.
And that’s not even considering the commissions and fees that ANZ charges to manage one’s wealth.
If you take the time to carefully research before making your investment decisions, you could be beating the other guys in no time.
Habit #4: Ignore the Claptrap
As part of your research process, you’ll run into numerous sources of advice.
Everyone will have their own ideas as to what you should do.
Some will be right.
Others will be wrong.
Your best option is to use a little elbow grease and investigate every idea you hear.
Eventually, you’ll start sifting out the unreliable sources like your brother-in-law down the street who keeps telling you to invest in his idea for “Sparkle Suds” – laundry detergent with glitter in it.
Personally, I try to avoid the mainstream as much as possible.
Not only is most of the advice useless, it’s all old news.
I prefer to check out fringe ideas. The untested businesses and products that are undervalued and primed to explode. The contrarian concepts that you’ll never hear in the mainstream.
Who you listen to is your choice, just don’t try to listen to everyone – it’s not possible.
Habit #5: Keep Your Eye on the Prize
Investors are a jumpy bunch.
If they smell even a waft of bad news, they run for the door.
Oftentimes, the news turns out to be good, but some investors will have sold out of fear anyways.
If you try to react to every little price change and every piece of news, you’ll never sleep again.
Now, there’s no harm in watching for updates and changes because sometimes you’ll need to make small readjustments to stay on course, but generally it pays off to hold fast.
Crypto owners know this better than most.
Their coins are wildly volatile within a double percentage intra-day range.
Up 23% today. Down 31% tomorrow. Up again the day after that.
However, if you want to achieve your investing goals, you need to keep your eye on the goal, not the swings in between.
For more tips and techniques on being a more successful investor, subscribe for free to Money Morning New Zealand by signing up in the box above.
Editor, Money Morning New Zealand