SO you want to be A Stock picker investor

Posted by Mike H on 1 August 2016 | Comments

Despite all the evidence you have decided to become a stock picker. Welcome!

 

Stock picking is quite straight forward. 

Here are some, but not all, suggestions that may help along the way.

1. Lots of Self-Education about the markets and your own psyche. Most Successful stock pickers say it takes at least 5-10 years of study and experience to become proficient.

2. Become VERY skilled at risk analysis and management.

3. Be prepared to spend a reasonable amount of money to get quality independent advice and information.

(Ad alert : The Australian Investor Association, as well as offering a stack of independent information through our web site, meetings, seminars and conferences, is also a great way of socializing with other like-minded investors.)

4. Paper trade as long as you can (or trade with token amounts of capital if it doesn’t feel real.)  Consider firstly doing this on someone else’s model portfolio until you have worked out all the nuts and bolts of trading.

5. Seriously consider spending $60 on Colin Nicholson’s web site. Colin is a highly respected Australian author and “amateur” investor. He has been at it for 35 + years, full time! I’m definitely not suggesting you copy his portfolio choices, but to use his journals as a template, and his reflections as your model.

6. Play with different investment strategies until you find one that suits your personality, expertise, risk tolerance and time constraints. Uncover your strengths and weakness. Try to effectively manage your weaknesses and trade through your strengths. Whenever you try out a new strategy, initially paper trade +++ (the ASX has a great platform for this).

7. Keep meticulous records. As well, keep a detailed trading journal of all your decision making. Use these to hold 6 monthly “performance review" sessions with yourself. Even better if, you have a trusted mentor and a really resilient ego, do it with him or her.

8. Always remain humble. Hubris is your deadly enemy. A prolonged streak of early luck has been the down fall of many a budding stock picker.

9. Learn to recognize the myriad of “conflicts of interest’ that gurgle up as expert opinion. They are usually not dishonest: but experts with skin in the game are just as prone to cognitive bias as the rest of us.

10. Do not get over whelmed with information.

Learn to recognize and avoid white noise. Remember the main goal of most media is to get your attention, keep you reading and throw ads in your face.  Most of the time the main aim of their on-call, publicity prone experts, is to get you to (by embracing their investment opinions) buy their various products.

11. Lots of patience. There is no rush. Steady steps. Don’t take the next step until you have mastered the last.

(If you find yourself becoming really frustrated about leaving your money in cash in the mean time you could have just failed step 11.)

12. Even when you become skilled, strongly think about leaving a core of your investments in Index funds /ETFs, selected active managed funds and LICs. It is much easier to focus on just your best investment ideas than struggling to effectively oversee a portfolio of 20 + individual share holdings, the last dozen possibly chosen more for diversity than high investment opportunity. (Don’t forget to frequently trim your core to counterbalance your stock picking biases.)

Did I say stock picking quite straight forward?

Sorry, I must have been thinking of something else!

Caveat:

All evidence suggests that most stock pickers will not outperform that portion of their portfolio dedicated to managed funds / index funds and LICs.

It is fun trying though!

Regards

Mike H

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