As the year draws to a close, many investors must be heaving a sigh of relief after enduring months of seemingly endless volatility and uncertainty.
For investors who know how to take advantage of good valuations to purchase more shares, it presented a golden opportunity for them to accumulate more of their favourite companies on the cheap.
As the New Year approaches, I decided to pen down three investment resolutions I made to improve myself as an investor. Investing is a lifelong journey, and our mindset should always be one of continuous learning.
Reading Up On One New Company Per Month
The expansion of our circle of competence is essential, and I resolve to read up on one new company every month in my quest for new knowledge and to expand the limits of what I know. This will include the company’s annual report, any associated broker reports and all news reports relating to that company.
The company may not be what I want to invest in immediately, but the knowledge should come in handy down the road in case I do decide to purchase it eventually. There have been companies in my current portfolio which I had monitored for years before taking the plunge, as the valuation was attractive and some level of pessimism had already been priced in.
Exploring Quality Companies Which Are Not Traditionally Cheap
My original concept for value investing was relatively simple – look for well-run, cheap companies to invest for the long-term.
A big requirement back then was the word “cheap”, either in valuations or because an adverse event had beaten down the share price to attractive levels. There’s nothing wrong with this strategy except that I may end up with a pile of value traps.
But for 2019, I plan to explore more quality, large-cap companies which are not cheap if we go by traditional valuation metrics. Such companies are solidly-run and have outstanding management teams, helping the business to grow in multiple ways while maintaining a strong balance sheet. They, therefore, should be worth looking into.
Being More Alert To Red Flags
Recall that I wrote about three investing lessons I learnt this year, and one of them was about being alert to red flags. Inaction and inattention on my part led to some significant losses for one of my positions. I would resolve to stay more alert to such red flags and to shift into action if I do identify deterioration in the underlying business. Of course, it’s always a judgement call, but at the end of the day, if the capital needs to be protected, then it should be done decisively and without delay.
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