Exclusive event gives firms a chance to state their case and delegates time to examine it
1. Have a plan
Before you put any cash you work, you must know what you are investing for. This will condition your target return, time horizon and appetite
for risk and therefore the asset classes best suited for your aims.
2. Do not put all of your eggs in one basket
A diversified portfolio of 12 to 15 stocks, bonds and funds should cover most eventualities and keep something trickling into your savings pot almost whatever the weather assuming they cover a range of different industries and geographies. This number is also practical in terms of dealing costs, newsflow management and performance measurement.
3. It is better to travel than arrive
Financial markets discount - or price in - future events. That is why a share price will sometimes fall on good news and rise on bad, as the valuation already factors in these events. Remember: if an event is featured in a national newspaper it is already in the share price. You must always look forward to try to determine what will happen next.
4. Cash is king
Profit is a matter of opinion, cash flow is a matter of fact. Some unscrupulous executives will try and dress up their profits but they cannot fiddle cash. Accidents happen when companies look profitable but generate little cash so focus your research here when looking at individual stocks.
5. It's never different this time
According to fund management legend Sir John Templeton 'It's different this time' are 'the four most expensive words in investment.' They lead the unwary to pay any price for a good story and forget about valuation, usually with disastrous consequences, as shown by the technology bubble of 1998-2000 and mining boom of 2005-07. If something looks too good to be true it usually is.
6. Never invest in something you do not understand
Peter Lynch of Fidelity was one of the most successful fund managers ever and he said he never touched anything he could not describe on one sheet of paper with a crayon. You will be angry with yourself if you lose money on something and cannot explain why. Stick to what you know and always do your own research.
7. Respect the market
Stunning rises and huge crashes show that markets are not efficient but you must respect their views. When you buy or sell something you are saying the market is wrong, so you need to have a good reason why. The growth, risk and quality matrix shows what must change for you to be right or the market to change its mind.
8. Go against the herd
Punters go skint backing favourites on the horses and although it may work in the short term, purely following hyped, momentum names can be dangerous. To get the best long-term returns you will eventually need to sell what everyone is talking about and buy what is being ignored - providing the valuation is right and growth, risk and quality checks are met.
9. Dividend reinvestment is vital
Patient portfolio builders should focus on firms with a strong competitive advantage, best defined as a good reason why clients want to pay for their goods or services. This confers the pricing power that enables companies to generate cash and pay the dividends that really get your savings to tot up over time. There are many funds dedicated to such firms, too.
10. Focus on value, not price
You would not enter a restaurant and buy a pizza regardless of whether it cost £5, £10, £20 or more. You would use your judgement to decide what is good value and the same discipline must apply to financial investments. Several simple metrics, in the context of growth, risk and quality, will help you decide whether a valuation is cheap, expensive or about right.