Why is Warren Buffett such a fan?

Buffett compared owning lots of stocks to owning a zoo. This approach may protect my capital but it won’t necessarily grow it. 

A quick bit of maths bears this out. Let’s say I own 50 stocks. If one of these doubled, it would increase my overall portfolio value by 2%. However, the effect of a single stock doubling naturally has a greater impact using a concentrated strategy. In the same scenario, the overall portfolio value would rise 10% if I owned just 10 stocks.

Clearly, if I were able to repeat this performance over many years, my wealth would multiply far quicker!

In good company

It’s easy to dismiss Buffett’s take on the concentration/diversification debate. Praising the former when you’re already extraordinarily wealthy makes sense. However, he isn’t alone in believing that the best returns come from this strategy.

In his book ‘100 baggers‘, author Christopher Mayer highlights how many of the world’s most successful investors, such as Bill Ackman and Bruce Berkowitz, have only a few holdings. At the time of writing, these people had the equivalent of billions of pounds invested in only their best seven and eight ideas respectively. 

As far as the UK’s concerned, top fund managers like Terry Smith have long praised the concentrated approach. And the performance of Fundsmith Equity speaks for itself! 

So, am I 100% with Buffett?

I don’t agree with Buffett completely. I don’t have money to burn. Nor do I have the same level of experience in the markets as the 90-year-old all-time investing great. To be clear, there are certainly issues with me adopting this strategy.

Perhaps the most obvious is that I might own the wrong stocks. These could tumble on poor trading or even cease to exist! A stock that goes to zero reduces the value of a 10-stock portfolio by 10%. For a 50-stock portfolio, it’s a more palatable 2%. There’s also a psychological benefit of being diversified. A portfolio that keeps me awake at night just isn’t worth bothering with. 

On the flip side, owning a small number of stocks may give me an edge. Since more of my money is invested in them, I’m compelled to be up to date with developments and know why they’re worth holding.

This comes into its own when investing lower down the market spectrum. Many people simply don’t have the time or inclination to thoroughly research market minnows that could generate explosive returns in time. 

Bottom line

To his credit, Buffett thinks most people shouldn’t be concentrated investors. They should just invest in index funds and not try to beat the market. I’m inclined to agree, especially for those who have no interest in stocks.

For more active investors like me however, I think the message needs to be that there’s no ‘perfect’ number of stocks to own. Instead, my portfolio should reflect a sober evaluation of my tolerance for risk. Setting achievable goals is also vital.

Get this right and I could do well, albeit maybe never as well as the Sage of Omaha.

The post Concentration vs diversification: I’m with Warren Buffett appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Fundsmith Equity. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

US stocks go electric

Thanks to its forthcoming inclusion in the S&P 500 index, it’s no revelation that electric car maker Tesla makes the list.

Having now posted more than the four profitable quarters required to make it eligible, Elon Musk’s California-based giant gets its promotion on December 1. Institutions operating index-tracking funds will be obliged to buy the stock. And canny investors know that. This should push the share price higher, at least for a while.  

But UK investors’ desire for electric vehicle stocks goes beyond Tesla. Manufacturers Nio and Workhorse make the list of the most popular buys, as do US-listed Chinese equivalents Xpeng (or Ziaopeng Motors) and Li Auto. Interestingly, Canadian car designer ElectraMeccanica was the most popular stock traded by UK investors over the past week. 

Alternative power

Another in-favour share has been Plug Power. The $11bn cap makes hydrogen fuel cell systems that replace conventional batteries in vehicles such as trucks and equipment used in warehouses. Its shares have climbed an incredible 700% in 2020 alone.

A second popular alternative power buy in the last seven days has been FuelCell Energy. It designs, manufactures, operates and services fuel cell power plants.

With the push to green energy sources likely to play a significant role in Joe Biden’s presidency, it’s understandable that UK investors should gravitate to companies like these.

Also in the mix

The remaining two stocks in the Top 10 list offer a bit more variety.

Small-cap biotechnology firm Vaxart is currently developing a coronavirus vaccine that can be administered orally. Assuming it’s clinically effective, a big positive is that it won’t require cold storage, making the vaccine relatively easy to distribute. Vaxart may be running behind other candidates on results, but that doesn’t seem to be deterring UK investors from buying. 

The final share that made the list in the last seven days was GoPro — the leading manufacturer of action cameras and video-editing software. 

Should I buy?

Here at the Fool UK, we’re not the sort to buy shares in companies just because they’re popular. Sentiment can turn quickly. So any strategy based purely on momentum is inherently risky. Moreover, the valuations attached to some US stocks now look crazy. Tesla is a prime example.

This is not to say we think owning shares in businesses listed overseas is a bad idea. Quite the opposite, in fact. Diversifying a portfolio to include these stocks can help protect UK-based investors from events closer to home.

It can also lead to better returns. While US markets have soared since markets crashed in March, the FTSE All-Share is still down around 15% in 2020. Buying London-listed firms feels safe, but this ‘home bias’ can prove a drag on profits.

Lastly, it’s a fact that most of the major players in ‘megatrends’ such as the move towards automation, healthcare innovation and, yes, electric cars, are listed overseas. As a long-term investor, I think getting some exposure is vital.

The post The top 10 most traded US stocks on Stake by UK investors in the past week appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This is why I think the most rational approach in the current climate is to focus on maximising the chances of achieving a great result rather than stretching for an exceptional one. Here are three smart investing moves that fit well with this mentality.

1. Drip-feed

The desire to buy at the very bottom and sell at the very top is natural. In reality, it’s very hard (if not impossible) to consistently do so. This is partly because no one rings a bell to announce market extremes. 

There’s also a human element to this. When markets crash, fear abounds. Most people worry that they’ll fall further. When markets then rally, greed takes over. A lot of us assume we’re in danger of missing the boat and dive in headfirst. And then they fall again.

Enter ‘pound-cost averaging’, otherwise known as drip-feeding your money into the market. Simply set up an instruction with your broker to invest the same amount of cash into a fund or stock on a monthly basis.

By following this process, you remove emotion from the equation. You also help smooth out returns by (automatically) buying more when prices are down and less when prices are up. It saves a lot on commission too! 

2. Diversify

Gradually moving your cash into stocks is all well and good, but it will count for very little if your portfolio isn’t sufficiently diversified. Having the vast majority of your wealth in oil stocks, for example, won’t protect you in the event of a crash in the price of the black stuff (such as we’ve recently experienced). Holding only small-cap stocks can be a recipe for a disaster in tough economic times as many of these might fail.

This is why holding a combination of nimble minnows. solid mid-caps and established blue-chip stocks in a variety of sectors is smart for most people.

Of course, diversification can extend beyond stocks. Having a balanced portfolio containing some exposure to bonds, property and gold can provide protection if/when one or two of these assets perform poorly. 

Will this put a cap on returns? Yes, up to a point. Research has shown that keeping all your money in stocks will give you a better return over time compared to spreading it around.

What research can’t do, however, is replicate the emotional rollercoaster inherent in such a strategy. I’d argue that sacrificing some profit for good health is worth it.

3. Defend

A final smart move to make in uncertain times is to gravitate towards those stocks that have proved particularly resilient in previous economic storms.

Within this category, I’d include consumer goods firms, utility companies and big pharma. All three sectors provide goods and services that are always in demand so earnings should remain relatively stable. This also means that many of these companies will continue to pay dividends to their owners at a time when a lot of firms won’t.

The only flipside to the tendency of defensive stocks to hold their value is that they are unlikely to generate the biggest gains as markets recover.

The post 3 smart moves for investing in uncertain markets appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

For what it’s worth, I’m also inclined to be more bearish than bullish right now. That said, I’m very aware that trying to predict the direction of markets, at least in the near term, is a waste of time.

What I can say without any hint of sensationalism however, is that a crash is coming. We just don’t know when.  

Regardless of timing, here’s how I’d deal with it. 

Be prepared

The best way to deal with a market meltdown is to anticipate it: get your finances in such a state that you know you’ll able to ride out any volatility without losing sleep. “Forewarned is forearmed“, as the saying goes.

Ultimately, this means checking that the way your money is allocated matches your risk-tolerance. Since they often fall the hardest, there’s no point holding just stocks if you panic at the first whiff of trouble.

Stocks should remain the core of your holdings, but a solution would be to increase your exposure to other assets, such as bonds, property, gold and cash. These are unlikely to give you a better result than equities over the very long term, but should help stabilise your portfolio in difficult times.

Tweet less, read more

This isn’t the place for a detailed analysis of the benefits and drawbacks of social media. Notwithstanding this, I do question the usefulness of sites like Twitter and Facebook (and reading highly emotive posts) during market crises. 

A solution for making it through a meltdown is to read more about how frequent they actually are. Aside from your regular dose of the Fool UK (naturally!), I’d recommend the writings of US psychologist Daniel Crosby — author of ‘The Laws of Wealth‘ — for this. Clearly, the classic thoughts of Warren Buffett and his teacher, Benjamin Graham, are always worth revising.

Ditch ‘the twitch’

A third recommendation is deleting anything on your phone relating to your investment account(s).

Since we’re long-term investors, compulsively checking your holdings through mobile apps is counterproductive but particularly so when the next crash happens. “A watched pot never boils” can be adapted to “a watched pot never boils but continually fretting over your portfolio can breed unnecessary action and reduced returns“. Not quite as catchy, but you get the gist. 

If you’ve done the groundwork to get things in order, you should be able to stay logged off until the storm passes. 

Get a watchlist

Having prepared yourself for the worst (and with cash on hand), you can now take steps to profit from a crash as and when it happens. For me, this starts by drawing up a list of stocks I’d want to buy on any share price weakness. 

To be clear, buying when everyone is selling sounds easy in theory but is very difficult to do in practice. Faced with financial ‘apocalypse’, it’s remarkably easy to forget that stock markets chug higher over time, despite enduring similar crises in the past. 

Should you be able to rise to the challenge, however, you can be confident that the end result will be worth holding your nerve for.  

The post Do you fear a market meltdown? Here’s what I’d do appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Having said this, there are a few things all new investors should really try to avoid. 

1. Starting without a solid foundation

Three things need to happen before you buy a single stock, in my opinion.  

First, make sure you’ve completely wiped any high-interest debt. Investing is all very well, but doing so while still carrying debt is the equivalent of taking one step forward and two back. 

Second, have some ‘rainy day’ savings for life’s little emergencies. A few months’ of expenses should be sufficient to get you by. 

Third, open a Stocks and Shares ISA. Fail to do this and you’ll end up handing back a proportion of what you make to the taxman.   

Those who choose to bypass the above will be taking far more risk than necessary before they’ve even get started.

2. Investing everything in one go

As a market newbie, it can be tempting to assume you need to put all your money to work in one fell swoop. 

Thankfully, this isn’t the case. While it’s never a good idea to stay in cash for too long (inflation will gradually erode its value), all major brokers now offer the option of making regular monthly investments. As well as paying less in commission to acquire stock, this strategy also ensures you won’t invest everything at the top of the market.

Not needing to rush is one of the few advantages private investors have over professional money managers who are required to chase performance to keep their jobs. Don’t squander it. 

3. Ignoring diversification

Even the best companies experience setbacks. If you’re going to pick your own stocks from the outset, it’s therefore vital to spread your money around.

This usually means buying stocks in different industries (such as housebuilders, retailers, pharmaceuticals) but it could also be applied to the size of businesses (not too many small-caps). Moreover, it’s a good idea to buy firms that aren’t too dependent on trading in just one part of the world. 

How many stocks is enough? Research suggests roughly 20-25 should give you all the diversification you need.

4. Buying what’s popular

Another rookie error is to only buy those stocks that have had a good run in the last few weeks or months. 

While it can be very profitable, the issue with this approach — known as ‘momentum investing’ — is that momentum can disappear very quickly, causing share prices to fall. This is usually exacerbated in popular stocks as they tend to have very rich valuations.

If you must buy something hot, try balancing it out with something that offers value and/or income. 

5. Not being bothered

The rationale behind stock picking is very simple: we buy shares in the hope of selling them on for a higher price. In reality, it requires effort, patience and the ability to keep emotions in check.

If you suspect that your commitment to researching companies and monitoring their performance may last about as long as your 2020 gym subscription, it may be best to avoid buying individual stocks and put money in cheap, market-tracking funds instead.

The post 5 awful moves new investors should avoid in 2020 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That investors don’t seem all that concerned may be partly down to the fact the company’s performance in emerging markets was more encouraging. That highlights why geographically diversified companies such as Unilever can be ideal for most defensively-focused portfolios. In these markets, collective sales rose 5.1%. Overall revenue increased by 5.8% — in line with analysts’ forecasts, although this was helped by a 2.3% currency boost.

Investors are also likely to be relieved by the prediction full-year results will show an improvement in profit margins and “another year of strong free cash flow.” Looking ahead, Unilever said it was now anticipating underlying sales growth of somewhere “in the lower half” of its multi-year range of 3-5% in 2019. 

Newish CEO Alan Jope (who replaced Paul Polman at the helm late last year) seemed satisfied with these numbers, saying the performance had shown “a good balance between volume and price.” He also commented that the owner of ‘sticky’ brands, such as Marmite and Pot Noodle, was “taking action to remain relevant to the consumer of the future, such as setting stretching goals on plastic use.”

So, are the shares worth buying? Well, they certainly aren’t cheap, despite being 12%-or-so lower in value than the all-time high hit back in September. That said, the current price-to-earnings ratio of 21 is pretty much bang on its average valuation over the last five years, suggesting that new investors won’t necessarily be overpaying. A 3.1% yield, while nowhere near as high as that offered by other top-tier firms, is worth grabbing and should be adequately covered by profits. 

For me, Unilever is just the sort of stock to hold if markets get choppy. It won’t necessarily rise while others fall, but the predictability of its earnings should ensure any damage is both temporary and relatively limited. 

Another defensive demon

Another stock I think should appeal to defensively-minded investors is Robinsons and J2O owner Britvic (LSE: BVIC). Even if the UK does enter a recession, demand for small-ticket items, like the drinks produced by the FTSE 250 member, is unlikely to be hit as hard compared to those selling more discretionary items.

Things have been fairly quiet at the business since I last looked at its stock in July. The only real news was the appointment of a new chief financial officer (Joanne Wilson). To be honest, that’s how things should be with any company worth holding for the long term… no panic, no stress, just quietly chugging along.

Notwithstanding this, Britvic’s stock has been in scintillating form, moving almost 40% higher in the last twelve months alone. Following this strong performance, shares currently change hands for almost 19 times earnings. Again, that’s not cheap compared to the general market, but it does, I think, reflect the quality on offer (based on consistently stellar returns on capital employed). 

A secure-looking 2.8% dividend yield is another bonus, particularly for those only looking to protect their wealth in the event of an economic downturn.

The post Looking to protect your wealth? Unilever isn’t the only stock I think should appeal appeared first on The Twelfth Magpie.

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• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• 2 FTSE shares for beginners starting an ISA
• Is this former stock market hero now the ultimate FTSE 100 buy and hold?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Regardless of whether you agree with his strategy or not, it’s clear whatever shenanigans we witness in the political world over the next month is going to have some kind of impact (good or bad) on your portfolio. With this in mind, here’s how I think investors should prepare.

1. Ditch the crystal ball

It is, of course, hugely tempting to try and predict what’s going to happen and adjust your portfolio accordingly. However, if the last three years have taught us anything, it’s that no one knows exactly how this period of political turmoil will end. Our current prime minister might even be gone before 31 October.

This being the case, it’s therefore important to hold investments you’d be happy to stick with for the long term and match your risk tolerance, regardless of any short-term volatility. Leave the high-stakes, might-just-make-a-profit-if-I-time-this-right behaviour to the traders. 

It’s also worth remembering a resolution to Brexit will simply leave a space for some other event or issue to take its place. There will always be something else for markets to worry about. 

2. If in doubt… drip

Having accepted no one knows what’s coming next, it can still be tempting — albeit counterproductive from an investment perspective — to wait until we know for sure. 

As legendary fund manager Peter Lynch once remarked: “Far more money has been lost by investors in preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” The same will surely apply to Brexit.

All stock market journeys are uncertain and it’s for this reason shares give far better returns than any other asset class over time. We’re rewarded for taking more risk than if we’d simply held our savings in cash (not recommended, thanks to the eroding power of inflation).  

This is why drip-feeding money into your existing holdings — or ‘pound cost averaging’ in market lingo — will help avoid investment paralysis. It may feel counter-intuitive, but the message here is simply… keep calm and carry on.

3. Buy the world

There’s a tendency for investors to stick with what they know. That’s understandable considering we may use a company’s products or services on a daily basis, or know more about an economy if we actually contribute to it. Failing to ensure your holdings are geographically diversified, however, can be problematic if the companies or country you’re invested in enter a prolonged sticky patch.

It’s for this reason I’d recommend having exposure to markets other than the UK. This isn’t about attempting to jump in and out of investments to reap maximum profit. It’s about allocating your capital prudently so your portfolio remains stable and you can sleep at night.

Aside from moving some of your cash into economies that couldn’t care less about Brexit, it’s also worth contemplating whether you’re sufficiently invested in assets that, while unlikely to outperform, tend to be less correlated with shares (e.g. bonds, gold).

The post Your 3-step Brexit survival guide for October appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That’s why so many investors become obsessed with trying to time the market. Trouble is, the majority of us are absolutely awful at it — buying at the highs and selling at the lows.

Personally, I think there are far more important things to worry about.

1. Paying exorbitant fees

Since research has shown very few fund managers are able to outperform the market on a consistent basis, I’m averse to keeping too much of my capital in (expensive) actively managed funds.

In my view, it’s far better to buy a low-cost passive fund that tracks the FTSE 100, for example, than an income fund that specialises in UK large-cap stocks.

Even if the latter does manage to beat the former, it often becomes a false economy when fees are deducted. And that’s when things go well. 

Moreover, the performance of professional investors is judged on a quarterly or annual basis. As a result, they’re often forced to jettison otherwise solid stocks in favour of those that are temporarily outperforming (and priced accordingly).

As a private investor, you only have to justify your decisions to yourself.

2. Being insufficiently/overly diversified 

It’s no secret that running a concentrated portfolio can be a route to riches. The only condition is that these holdings all perform superbly (or you find the next Amazon or ASOS that can make up for the losers). That’s a big ask and, consequently, a high-risk strategy for most of us.

But while placing all your hopes in only two or three stocks isn’t part of the Foolish philosophy, there’s also no need to turn the active part of your portfolio into a quasi-tracker fund that has exposure to a huge number, either.

Studies show we only need roughly 20 company stocks to be sufficiently diversified. Any more than this and all we’re doing is increasing our costs.

3. Not using the right account

At the Fool, we bang on about how important it is for private investors to take advantage of tax-efficient accounts such as the Stocks and Shares ISA, the Lifetime ISA and the Self-Invested Personal Pension (SIPP).  

While differing in terms of how much you can contribute in any one tax year, and when you can get your money back, all of the above allow you to avoid paying any capital tax on your profits and any income tax on dividends you may receive.

The amount you’ll save will really add up over time and, thanks to compounding, could make a huge difference to when you achieve financial freedom. 

4. Ignoring inflation

While it’s never wrong to keep some cash on the sidelines to take advantage of inevitable market falls, holding a large amount is a huge mistake if you’re investing for the long term.

As long as interest rates remain below inflation, the latter will keep reducing the value of this money the longer it sits in your savings account. 

Far better to put any money you won’t need imminently into listed companies that not only grow in value but may also return cash to their owners in the form of dividends. 

The post Forget the next market crash. Here are 4 things to be more worried about appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, let’s look at what steps we can take to keep our heads as well as to be expected – not just during crises but on a day-to-day basis.

1. Recognise you’re human

When we buy shares in a company, we hope they will rise in value. When we sell, we are pessimistic on its future (or more optimistic about the prospects of a different business we’re wanting to switch to). Emotion precedes every action in the markets, even when they’re behaving themselves.

And when they don’t, our fallibility is highlighted even more. The idea of remaining ice cool when markets plummet sounds great in theory (and easy to do when we’re in the longest bull market in history) but managing this in practice is very difficult indeed. Bear in mind that many who started investing in 2009 or later have little experience of severe turbulence. 

So, rather than deny how emotional investing can be, it’s surely better to regard managing ourselves as important as picking the right stocks from the outset.

2. Remember your financial goals

It’s easy to forget why you’re invested when your portfolio dips by a few percent in a single day, let alone when there’s a looming political event ahead of us. 

That’s the rub with investing: there is always something to worry about. That doesn’t mean you should.

If you’re growing your wealth for a retirement that’s still decades away, you don’t need to worry. In fact, if you’re investing for five years rather than five weeks, you don’t need to worry. 

You see, equities have outperformed every other asset class over the long term. So, the longer you retain your shares, the greater your chances of emerging richer from your stock market journey.

Resist checking your portfolio every day and sleep easy. 

3. Get diversified

The benefits of running a concentrated portfolio aren’t hard to fathom. Just pick the right shares and get rich quick.

While theoretically possible, you probably don’t need me to tell you that selecting only winners is very unlikely. Unless you’re a robot, it’s also a recipe for a stressful life. 

It’s far easier to keep your nerve when you aren’t over-invested in any company. If one (or a few of them) fail or experience a sticky patch, the others should be able to take the strain. 

Reduce the chances of your emotions getting the better of you by holding a group of stocks diversified by geography and industry. 

4. Invest regularly

Staggering your investments over a period of time rather than in a single transaction is never a bad idea. It allows you to buy more of something when it’s cheap and less of something when it’s expensive, usually at very cheap commissions (£1-ish). 

But pound cost averaging, to give this process its technical name, also helps preserve your sanity.

While investing at market peaks can still make someone rich over many years, the misery endured from seeing their portfolio covered in red could be enough to convince him/her that investing just isn’t for them. Don’t let this be you.

The post 4 ways to be a less emotional investor appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So, as we say ‘”cheerio” to 2017 and greet the New Year with a nervous nod of the head, here are 10 things you need to be watching out for.

1. Skipping on research

Buying any company without some understanding of how it makes its money is asking for trouble. Make the effort to read its recent reports. Click here if you simply can’t be bothered.

2. Ignoring alternative views

Thorough research involves asking why an investment or company may fail as much as why it may succeed. Taking a balanced approach ensures we avoid falling in love with certain businesses and become blind to the risks of owning them.

3.  Not diversifying

Investing heavily in just a few stocks could bring about life-changing wealth but it requires luck and nerves of steel. If this sounds too risky (and for most people, it is), stick to building a portfolio of quality companies diversified by geography and sector.

4. Not investing according to your own risk tolerance

Understanding your attitude to risk is vital if you’re to reach your financial goals and not be scared away from the stock market. There’s simply no point buying shares in an infrequently traded, ‘jam tomorrow’ company if you’re not prepared for a bit of volatility along the way. Struggling to sleep at night? You’re doing it wrong.

5. Not using up your ISA allowance

Failing to take advantage of your annual ISA allowance is a big no-no, even if you have nowhere near the maximum amount of £20,000 to invest in 2017/18. Build a wall around your profits. 

6. Not keeping track of fees

Regularly buying and selling shares sounds like fun but — thanks to commission fees and stamp duty — it’s also costly. To reduce your susceptibility to over-trading, consider keeping a log of all your expenses. If the costs begin eating into the gains from your portfolio, question your approach.

7. Assuming that cheap shares signify value

Many large companies suffered significant falls in their share prices over 2017. Don’t assume that these are now worthy of investment without doing appropriate research (see Habit 1) — they could have further to fall. Conversely, don’t be fooled into thinking expensive stocks can’t continue rising. 

8. Not running winners

Thanks to our tendency to snatch at profits, failing to stick with our best-performing stocks can be very bad for our wealth. If the story hasn’t changed (and the valuation hasn’t entered bonkers territory), why not hold on?

9. Ignoring your investing time horizon

A person’s investing time horizon will depend on their financial goals. Those wishing to buy a house in five years should probably stick to less volatile assets. Those investing for retirement several decades away can afford to have a far greater proportion of their wealth in equities. On a long enough timeline, a few down days/weeks/months really won’t matter.

10. Assuming that acting is better than not acting

Investing is one of the few areas in life where inactivity often translates to better performance. Before taking action on your portfolio, consider whether your motivation for doing so is based on nothing more than boredom. If so, it may be better to sit still.

The post 10 bad habits to kick in 2018 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.