As we move through the 12 Days of Christmas, it seems a good time to recall some key principles of investing. These can be broken down into convenient chunks.
These are Questor’s 12 rules for Christmas investing.
1. No investing strategy is perfect. It is impossible to predict when an investment strategy will lose its value. It is impossible for even the most “wealth preservation”, hedge funds, or billionaire investors to manage it.
It would be best to have gilts and other solid government bonds that can be redeemed.
2 It is always a good idea to make a profit when things have gone higher or faster than you expected.
3 Keep the economic background in your mind. When inflation rates started to rise it was the signal to sell bonds and “bond proxy” – they were priced for a set that had ended.
4. There are very few fund managers who are truly gifted (one of them recently gave it to Questor at 1pc). They all talk about a good game, but the real test of whether they are qualified to manage your money is to verify that they actually follow their stated strategy.
5. Attention to your debt. Companies that have low borrowings, or none at all, are more likely to be in a strong financial position during difficult economic times. For heavily indebted businesses, the combination of falling sales and recession is often fatal. This is true for funds that borrow. Therefore, it is important to scrutinise the debts of Reits as well as infrastructure funds.
6. Diversification doesn’t mean having only a few investments. You should aim to have a range of asset types (shares and bonds, property, etc.) in a variety of different regions around the globe, in different currencies, and stocks that respond to economic trends in different industries.
Diversifying investment styles is a goal for fund managers. Questor heard this from Questor: “You can have an excellent manager in a style that suits the circumstances, or a poor manager in a style that suits the times. Avoid the last two categories, no matter what you do.
7. A stock with a consistent business model that generates high returns on capital and can reinvest at similarly high rates of return is one you should consider buying and holding. You get the magic and compounding without having to worry about a decline in value.
These opportunities are rare, but they become less common when gloom prevails like it is now.
8. “If it seems too good to be true …” should be your first choice. However, niche funds can sometimes break the rules, particularly if they have extensive sector knowledge. These funds are often found in niche markets such as the debt and property markets.
9. Managers of businesses or funds who are too rich for their own good can indicate that something isn’t quite right.
10 Both investing in stocks and funds is valid, but you should be ready to put in more effort if the former. A global tracker fund is a good option if you are looking to save time and effort.
11. Questor recollects the first time a professional investor gave him advice: “Look at what others are buying and do the opposite.” Long-running bull markets can end. We have seen it happen with growth stocks and bonds this year. You will need patience.
12. Luck can affect even the most successful investment strategies. You will need less luck if you are more focused on a strategy. We wish you a lot of luck next year.
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