It’s been a good year for the stock markets. After last year’s blip in October, we have seen markets recover and surge with the ‘Boris bounce’ following the UK general election.
However, my own performance could’ve been better. Here are two things I’m going to remember for next year.
Don’t sell too early
One consistent theme of mine has been selling stocks too early. As Peter Lynch has said, sometimes the best stock to buy is the stock you already own. Even if it means buying at a higher price!
It’s easy to think about all that paper profit – and profit isn’t yours until it’s banked – but selling a good stock too early is silly. If the investment case hasn’t changed (and in some cases even strengthened), then why would the reasons for investing have changed?
Investing in stocks is like playing poker. With every card, you see how the odds change. In investing, if a new card such as an earnings release keeps showing that the odds are in your favour – then it may be best to keep holding.
No doubt many investors thought they had done brilliantly when they sold Fevertree at 1,000p when they’d been holding from 200p – and they had done brilliantly. But the stock carried on to a peak of over 4,000p.
That’s the problem with investing. Nobody can call the top, but the upside in stocks is unlimited. A stock can always go higher. Always.
Don’t listen too closely to management
The problem with directors is that they are in sales. Their job is to increase the share price over time. That is what shareholders – the owners of the company – are paying them to do. Now, when you meet a director, very often they’ll tell you what you want to hear. And they won’t tell you about the negatives!
I’ve made mistakes listening to management before, and given my experience I now only approach management once I have a list of questions that I’d like answered. That way, I know the company much better and can gauge their response more appropriately.
Trust your own judgement
Yes, there may be smarter people in the world than you or me, but there is one thing I can be sure of: nobody will care about your money as much as you care about your money.
And because of that, you’ll go to extra lengths to protect it. If you don’t fully understand or trust what you’re investing in – you’ll be less likely to invest when it’s your own money on the line.
It’s fine to listen to others to hear their judgement. Just don’t pay too much attention to them. Remember, everyone is a bear if they don’t own the stock; if they were bullish then they’d probably own it!