While asset allocation and rebalancing are important factors in managing your portfolio, even more imperative is effective stock selection and limited activity.
Portfolio management is a tricky business, particularly with the abundance of advice and different approaches out there. Everyone's up in arms about asset allocation and rebalancing... and while we definitely think those are important factors, they're just not quite as vital as stock selection and limited activity.
We think that choosing the right stocks and trading minimally sets your foundation just right so that all other factors of portfolio management are that much simpler and easier. It's the practice of patience, consistency and confidence.
How to Invest: Stock Selection and Limited Activity
Choosing stocks can make or break your investing efforts. If you're not selecting your stocks patiently and methodically, then you're probably running the risk of chasing short-term investing goals... which is simply not value investing.
STRIDE follows 3D Value Investing tactics. This means, they use 3 dimensions to evaluate and select their stocks: fundamental analysis, valuation and timing. These dimensions are vital to one another and the stock selection process as a whole - only incorporating one or two of them into your strategy won't yield the results that you're after. As a quick introduction, we've outlined these dimensions for you with quotes from our 3D Value Investing eBook.
- Fundamental Analysis:A method that you use to gain a better understanding of a company, its intrinsic value and its future prospects. Essentially, you want to determine the value of a company so that you can identify if it's a good or bad investment opportunity.
- Valuation:Our valuation process helps us to determine the fair value of businesses and ultimately find value in the multitude of global investment opportunities.
- Timing:It's important to buy shares that will swing right back from a dip and increase in value over the long term, rather than investing in a share that will fall even further. The STRIDE timing engine helps us to: 1) Identify the recovery of a stock after a large dip, and 2) Find good targets that are already experiencing upward momentum and have not suffered a dip.
These 3 dimensions highlight the most telling areas of a company, ultimately informing you whether or not it's a good long-term investment. Luckily, we've written extensively about these topics, and you can peruse our blog for any information on 3D Value Investing. In short, you should:
- Know when to buy, and when to sell.
- Be investing in value and know when a stock is most valuable.
- Know how to pick stocks that are worth holding forever.
Value investing is something to continuously apply your mind to, because there's always something new to learn.
Too many investor's hurt themselves by hesitantly making trades left, right and centre in an attempt to chase the market. But here's a not so secretive secret: the more you trade, the more you pay.
We won't take too long to discuss this point, as there's really not too much to understand. The more you trade, the more you pay. We can't be more straightforward than that. Trading generates fees and taxable events, which obviously harm your earnings and, in turn, harm the long-term returns of your portfolio. That's why saving money means limiting your activity, so that you’re only making essential trades and paying essential fees. We also discuss this in our Building Your Portfolio playbook too.
If you enjoyed this blog, but want to know more about the details in effectively running your portfolio, simply download our Practical Guide to Value Investing below.