Four Steps to Improve Your Investment Returns

Here are four simple things that have been on my mind for quite some time, which I think, can be helpful for most folks in improving their investing returns.

1. Invest in businesses, not tickers

This has to be numero uno. Far too often, investors forget that behind each share lies a living, breathing business.

However, as billionaire investor Warren Buffett has shown, investing with the mind-set of being a business owner can help one become a better investor; with the mind-set of a business owner, you’ll want to find out what a business is really worth and then invest accordingly.

Doing so can also save one from a lot of heartache and avoid market bubbles like what infamously happened to Blumont Group (SGX: A33) last October when its shares lost more than 90% of its value in the space of three trading days.

2. Invest for the long-term

Over the past 26 years since the start of 1988, the historical odds of losing money for an investor who had theoretically bought into the Straits Times Index (SGX: ^STI) becomes dramatically lower the longer one holds on to it.

A share like Raffles Medical Group (SGX: R01) was dead-water for nine years as its shares ended at S$0.56 and S$0.55 in March 1999 and Nov 2008 respectively. Hold it for just a few more years however, and investors would have been sitting on a 468% gain from its March 1999 level at its current price of S$3.18.

This is not to say that the Straits Times Index would definitely continue to do well over the long-term, or that holding a stock that has been dead-water for 10 years would do you well eventually. This is meant to point out how time in the market can be a great ally for the individual investor.

3. Don’t let fear cloud your judgement

My colleague Stanley Lim recently pointed out how fear in the markets can make for great buying opportunities when nobody wants to touch shares with a 10-foot barge pole.

In Greece, the economy hasn’t done well at all over the past few years with its falling Gross Domestic Product. As a result, investors shunned its stock market, resulting in its ASE Index falling to a Cyclically-Adjusted Price Earnings (CAPE) ratio of close to 2 back in June 2012. Subsequently, the ASE Index rebounded close to 150% to become one of the best-performing market indices in the world by Oct 2013.

Fear can create good investing opportunities. Don’t let it cloud your judgement.

4. Create a wish-list

This is easy to say: “I won’t let fear control me during market panics. I’ll be a buyer when markets fall!”

But in reality, it’s a lot tougher to do. Blame that on our quirky minds for the Empathy Gap, a behavioural bias where we are simply blind to how we would react when in a different emotional or mental state.

So, when markets are moving up or flat, it’s easy to say how we’ll be bargain hunters when prices fall. But when markets do fall and fear is abundant, it might not be that easy to place that buy order after all.

To help mitigate the problem, the legendary investor Sir John Templeton came up with an elegant solution. When the markets are doing fine, he would create a wish list of shares that he would like to buy but only at lower prices. When shares started falling, he’d whip out that list, steel his stomach, and buy.

Foolish Bottom Line

Investing is simple, but not easy. Though there are some relatively simple steps everyone can take to increase their odds of success in the stock market jungle out there, it will take some dedication and mental fortitude to get them right. And if you do, your future brokerage account might just thank you for it.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group.