The Value Investing Checklist to Effective Portfolio Management

stride-the-value-investing-checklist-to-effective-portfolio-managementActivity is Expensive

Warren Buffet once said: "The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch."

You don’t have to move at every opportunity. The more you trade, the more you underperform. This has been proven time and time again. Trading extensively can become a very pricey activity. Each trade comes with a lot of added fees. Even if you use a trading platform with very low trading fees, you still pay tax on each trade. In the case of hefty trading, you spend so much money on the accompanied fees that your portfolio starts underperforming. Eventually, your fees will outweigh your gains, causing your portfolio to underperform.

The Media Effect

I blame extensive portfolio activity on the media. Not a single day passes without us seeing a stock related story on the news, reading a story online, in the papers or hearing it on the radio. It has become such an integral part of society that we simply cannot avoid it.

The media industry feeds on shock value. The more dramatic a story sounds, the better. Most media instruments are operating from revenue generated by advertising income. The term ‘clickbait’ is described as web content that is aimed at generating online advertising revenue, especially at the expense of quality or accuracy. It relies on sensationalistic headlines to attract click-throughs that in turn generates shares over social platforms, attracting more viewers to the website.

By posting over-dramatic stories, the media steers people like sheep, forcing them to believe every word they say. The media isn’t always right, nor in some cases a trustworthy source. The media has many hidden agendas and the stories which they focus on may have ulterior motives. We won’t know for sure unless we do research of our own to prove the fact true or false.

If the media publishes a story about the market going into a correction or heading for a crash, you should remind yourself that they are simply overreacting on natural market fluctuation. The market fluctuates in the short-term - that is what it does. This should not pertain to us because we are looking for long-term gains. It might look drastic in the short-term, but we have a long-term vision. As long as our stocks show an uptrend over the long haul and our research suggest that nothing will be changing in the near future, we are satisfied.

There is no need to react every time the media tells you to. Stick to your hard facts and remind yourself that you are a value investor.

Have a Set Strategy and Stick to It

The media can say whatever it wants, if you stick to your value investing strategy and principles you will always achieve your goals. Choosing an investment strategy is one of the first steps every investor should do when starting investing. Your strategy should have set principles that you should follow by heart. The intrinsic principles of successful value investors is what made them successful in the first place. I can guarantee you that they didn’t base their trading decisions on media suggestions.

Thorough research is the only way you will find trustworthy information. Read financial reports, do your calculations and apply your principles.

When you do contemplate selling some of your shares, always ask yourself:

Why am I selling?

You should always have a concrete and objective reason for selling. Selling because a stock hit your target exit point or because your calculations show that the future of the company is looking dire due to a drastic change in fundamentals are good reasons for selling.

Am I scared?

You should never sell just because of fear. You should think like a computer and only base your decisions on cold hard facts.

Have I done my homework?

No investor can make an informative decision without doing their homework first. If you aren’t basing decisions on facts you are solely relying on emotion, which will cost you dearly in the future.

Is my decision based on hard facts?

You should only sell if your research suggests that doing so will be for the benefit of your portfolio. Otherwise you keep on holding.

Am I acting on principle or impulse?

Keep your principles intact and never make any impulsive decisions.

The Checklist

Before you act, go through the following checklist. If you can honestly tick off all of the options, you are ready to make a move.

  • I am acting on principle, not on impulse
  • I understand that fundamentally sound companies can withstand the harshest recessions
  • I know that notoriety, share price and size of a business aren’t necessarily signs of strength
  • I have questioned what I have seen in the media
  • I am not scared
  • I have done extensive research
  • My decision is based only on hard facts
  • I have utilised multiple indicators of economic status in context before making my decision to act.
  • I understand that acting too quickly or too often will cause my portfolio to underperform.
  • I must act decisively and efficiently, but only when the right time presents itself.
  • My main goal is to select wonderful stocks at fair prices and hold on to them for a long time.

In our latest eBook, part two of the “Asset Allocation and Effective Portfolio Management” series, we give you all the information needed to manage your investment portfolio to its utmost efficiency. Using our Long-term Profit (LTP) equation we demonstrate that principle over panic, facts over fear and allocation over activity will win you the best returns every time. Let us help you to choose the perfect portfolio management strategy for your every investing need. 

The feature image is altered. Photo credit: Darrol via photopin cc

Topics: Portfolio Management


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.

Download your eBook now

Subscribe to Email Updates