Tuesday, March 05, 2019

Investment Strategy

I am not a financial advisor. I have never worked anywhere remotely connected to finance and investing. I do, however, have an interest in investing and building wealth. Unlike many  investment blogs that make all sorts of investment recommendations - I have genuinely bought shares in all companies reviewed at time of writing. I put my money where my mouth is and will only recommend stocks I have personally had the confidence to invest in.

This post details my investment strategy. I am doing this mostly for personal reasons – keeping track of decisions made so I could follow up on them at a later date. The reason why I bought a share at a point in time is much more important than fluctuations of the share price.

Investing in shares is fundamentally different from trading, as the primary goal is long term consistent compounding gains. To put it simply, traders buy low to sell high (weeks to months), while investors hold for the long term for stable dividends and growth in equity (years to decades).

Stocks selected generally have the following features, in order of priority:
1) Trading at a discount. (PB and PE ratios. DCF modelling)
2) Consistent returns. (Dividends/EPS; ROE; ROCE)
3) Healthy. (Low debt / payouts covered by earnings)
4) Likely to be around in 10 years time.
5) Diversity - how it fits in my current year's portfolio. This is the part that probably does not apply to the reader as I am trying to find shares from a diverse range of industries.
6) Stability. (Beta value. Consistent organic growth)

I hope to hold shares for at least half a decade, with a compounding ~6 to 10% return each year. This beats the long term savings rate of about 2%. The goal is to build wealth consistently and safely. Warren Buffet's lifetime average was 21% compounding annually. I will be happy with half of that.

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