The old adage that a fool and his money are soon parted is particularly pertinent in the world of investment. While luck and enthusiasm are noble traits in a dog, those who hope to generate good returns need to gain solid experience. The best way to do this – especially at first – is to learn from others.
Warren Buffett, the CEO of Berkshire Hathaway and the world’s most famous investor, advises a buy and hold strategy to investment. Rather than assiduously watching the news to try and sell stock before its price falls, Buffet recommends holding good stock for the long term.
“If you owned an apartment house and you got to raise the rents a little and it was well located and you had a good manager, you wouldn’t dream of selling it,” he says. “So, get into a bunch of wonderful businesses and stay with them…” Tools such as the APT model can help investors determine which companies have performed consistently well.
Owning a few pieces of high-value art is a nice way to round off any portfolio. According to Fabian Bocart, founder of the Brussels-based Tutela Capital, one can always “invest confidently in art, because an artwork will never be bankrupt”. More specifically, he suggests calculating the potential profits or losses from each piece of work and comparing them before buying.
The biggest rewards can be found in the contemporary art market which, inevitably, is also the most volatile. Bocart advises investors in contemporary art to “buy wisely, sell wisely, and take care regarding authentication”.
As head of Fidelity’s Magellan Fund, Peter Lynch delivered a 29.2 percent annual return — nearly doubling the return of the S&P 500. Though now long retired, Lynch has left a legacy of advice that still stands today. One of his key recommendations was that investors keep their portfolios small and manageable.
“Owning stocks is like having children — don’t get involved with more than you can handle,” he says. “The part-time stockpicker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant.”
David Crosoer, a research and investments executive at PPS Investments, says that global economic conditions will require investors seeking real returns to pick individual stocks that will outperform.
“Cash and equities may struggle to generate the inflation-beating returns we have been used to over the past 20 years,” he says. “Ultimately, it will become necessary to rely to a greater extent on the ability of a manager…”
For those unwilling to employ someone else to manage their investments, various pieces of software are on hand to help. Visit APT for an example.
Benjamin Graham was known as ‘the dean of Wall Street’ and excelled at making money on the stock market without taking big risks. His strategy involved buying stock at a price that was well below the company’s intrinsic value.
The key words here are ‘intrinsic value’. This value can only be determined by the investor doing his or her homework. Understanding and appreciating a company’s innate worth allows an investor to subsequently sell when the stock becomes over-valued.