The STRIDE Blog

10 Steps Every Aspiring Independent Investor Should Follow

stride-10-steps-every-aspiring-independent-investor-should-follow-blogAll of us, at some stage of life, have imagined what our ideal future would be like; whether it be early retirement, setting sail on a 30-foot yacht, buying a RV to travel the country, paying outstanding debt or simply traveling the world and crossing off items on our bucket lists.All of those dreams can become a reality, and you can find yourself being a successful independent investor, but only if you follow these ten steps.

1. Sack your investment manager

This might sound extreme, but it’s the best advice that anyone can give you. You don’t need an investment adviser to be successful at investing. For years we have been victims of deliberate confusion, such as complicated jargon, Fedspeak and shadow banking. The financial industry created the illusion that we (independent investors) can’t invest without the help of investment advisers.

The reason you don’t need an investment manager is because you can do it better on your own. It is very important to remember that investment managers face exactly the same amount of risk as we do. They aren’t immune to market fluctuation. The best person to invest your money is you. That's what being an independent investor is all about. If you have a great value investment strategy in place and you stick to the principles, you have nothing to worry about.

2. Open an online trading account

Opening an online trading account is as easy as pie. There are a lot of different options to choose from. To make sure you pick the best trading platform you should:

  • Think about what goals you want to achieve as an investor
  • Decide which type of investments suits you best, may it be investing in stocks, bonds, options, ETF or mutual funds.
  • Make sure you do extensive research to see which platform accommodates your needs the best
  • Compare trading fees and find the one that suits your wallet the best.
  • Avoid being tied to any hidden fees or additional taxes by always reading the fine print.

3. Subscribe to a stock picking service that supports advanced value investing techniques

If you are going to fly solo, you will be needing a trusty sidekick. And I’m not referring to a person, but rather to an intelligent portfolio management and stock picking tool with many features that deliver the following data:

  • A wide reach of businesses, sectors, currencies and geographies to maximise diversification and reduce your risk
  • Clear and comprehensive company information displayed in multiple ways for a truly transparent, 360 degree view of the businesses you’re going to invest in
  • Great portfolio management with both summarised and detailed views of performance status
  • A means of tracking businesses that interest you for future investments
  • Valuations calculated according to value investing dimensions using full fundamental analysis spectrum for accuracy
  • Back test evidence to prove future forecast ability
  • Simplified scoring and rating systems for snapshot evaluation of company strengths and weaknesses
    Affordable subscription to keep fees to a minimum.

Investment technology used to be expensive, but these days it has become much more affordable. It should be your trustworthy source of which stocks to buy at what price, when to buy, sell or hold. You need to find a platform that is easy to understand and user friendly. Having the perfect investing software can make the world’s difference.

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4. Take your time selecting stocks

I know you’re excited to start investing, but don’t rush things. Being an independent investor means that you're accountable only to yourself... this should make you cautious. Selecting the perfect investments are crucial, because you want to buy stocks that you’ll be happy with holding even if the market shuts down for ten years. It is important to remember that sticking to your investment philosophy will bring the most consistent results. As 3D VIs, we would never invest in any business without first applying our methods and processes to the financial facts.

We are not interested in following the market herd. Instead, the principles of 3D VI allow us to cut our own paths through the market based on opinions of which businesses to buy into or sell out of, opinions that are formulated on fundamental analysis and valuation. We also employ our specific investing principles to dictate the timing of buying in or selling out. Think clearly about it. If the timing is right, the business is strong with its fundamentals in place, selling at a consider buy price and you know you will be happy holding the shares for years to come, you are ready to buy.

5. Diversify your portfolio

Don’t put all your eggs in one basket. A broad selection of intelligent investments across multiple sectors, geographies and currencies will further buffer a portfolio against risk. Maximum diversification equals minimum risk. Great value and promising returns with minimum risk is what you want.

6. Be absolutely clear on fair value, consider buy and consider sell prices

We want to know how much we should pay to buy into a business and how much we should sell our shares for in order to make the best possible return. Calculating fair value allows us to pinpoint two very important prices in this process: the consider buy and the consider sell.

Once the fair value of the business has been established, we can then blend in the other factors already determined by fundamental analysis.

Finally, the valuation stage of analysis closes the loop in our calculations of the margin of safety, by revealing to us the percentage by which a share is under or overvalued.

7. Be patient

Once you have bought a few shares you should sit on your hands and keep calm. Why? Because you are a value investor. Value investing is long-term investing. It isn’t as exciting as short-term investing, but it is much safer and has been outperforming short-term traders for years. This way you can invest without any added stress and watch as your investments grow and beat the markets year on year.

Keeping a cool, level-headed mindset isn’t easy and that is why most people fail at value investing, which in effect makes it easier for those of us who can do it.

Joel Greenblatt once said: “If value investing worked every day and every month and every year, of course, it would get arbitraged away, but it doesn't. It works over time, and it's quite irregular. But it does still work like clockwork; your clock has to be really slow.”

8. Check your portfolio regularly - seize every opportunity to profit from market volatility

As volatility rises the majority of investors start to panic, expecting a correction or bear mentality to hit the market. When the market falls tremendously, in the case of a correction or crash, most investors fear they will lose all of their money, resulting in them panic-selling their shares at a loss. This provides cool, calm and collected value investors the perfect opportunity to buy strong, discounted stocks. This means you get to have your pick of the crop and buy wonderful stocks at magnificent prices.

9. Use the laws of compound interest to your advantage and reinvest as much as possible

Compound interest is often called one of the most powerful concepts in finance. It can significantly increase investment returns in the long run. Reinvesting your returns in strong businesses is the best way to spend your returns and keep your money growing. You literally make interest on top of your existing interest. Watch this video by Investopedia, explaining the process of compound interest:(Watch video now)

10. Enjoy it! You are securing your financial future and a terrific retirement

Finally we have reached the final and easiest step of them all. If you manage to follow and execute steps 1 to 9 effectively, step 10 happens naturally. Sit back and enjoy watching your portfolio and magnificent returns grow. Let your money work for you instead of you working for your money. Turn your dreams into reality by becoming an independent investor today.

Learn how you can achieve 19.25% annualised returns by becoming an independent investor. Download your copy our Practical Guide to Value Investing below.  

STRIDE's practical guide to value investing for beginners: starting your portfolio

The featured image has been altered. Photo credit: lylevincent via photopin cc

Topics: Independent Investor

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3D Value Investing: Triangulating The Best Investment Targets

3D Value Investing uncovers the best businesses for investment, the fair value of those businesses and the best times to buy in and sell out. This approach to long-term investing results in higher returns with lower risk.

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