There is no need to start alone and from scratch; learn from the experts by standing on the shoulders of giants.
Earning money from stock investment is not easy. There are no quick rich schemes. If it is easy, everyone is rich. There is no need to study hard and get into university, slog at jobs or start companies.
Everyone invests and trades differently. There are many ways to make money in investing and trading. All great investors have their strategies and principles and they stick to them. There are far too many important nuances in the field.
Trading and investing are all about answering these 6 questions and a good investment strategy should provide good answers to these questions:
- What to buy?
- What price to buy?
- How much to buy?
- What to sell?
- What price to sell?
- How much to sell?
Everyone will have different answers to the above 6 questions even among the great investors. Everyone has their strategies. If we are unsure of our plan or follow others blindly, we can be lost and stressed especially when the market situation turns different from what we expect (which is usually optimistic with a profitable position). Yes, investing seems easy but it can be confusing.
Books were my first source of investing/trading knowledge. I learned the basics from books. I still read books. There are lots of great books embedded with highly valuable knowledge and experience. However, from knowledge to profits was a tedious journey for me. The actual investing/trading is situational and the books may not be a good guide to the actual situations; i.e. I am having losses with a market crash — what should I do?.
There are many free and paid courses online and classroom programmes with “hand holding support services” teaching different common techniques or propriety stock screens and scanners. It does get easy to be confused when everyone makes claims of their holy grail with very persuasive marketing.
For a start, I did take classes. Some were good and have formed a core part of my investing/trading approach. Most of them were not useful; partly due to differences in investing/strategy approaches.
A cheat sheet that truly jump-starts a profitable investment journey: Motley Fool
I have subscribed to several investment advisory services and Motley Fool has been my favourite. Their investment approach suits me well and their track record is impressive.
A good way to start is their Stock Advisor. Every month, there are two recommendations (regardless of how the stock market conditions) every month. Subscribers have access to all their recommendations and return to date from the year 2002.
David Gardner’s The Greatest Secret of All is a must-read. He also explained the Motley Fool investment methodology well explained in the YouTube video — Motley Fool Stock Advisor: What We’ve Learned After 200 Picks (23 Oct 2018).
Such an investment advisory service provides a good jump-start to the investment process with a list of great companies to evaluate than for us to develop a list from scratch. It shows a world of abundance — there are lots of outstanding companies to choose from. This will help to broaden our usual horizon that may be limited by our specialization, the industries we are working and familiar with, the countries that we have lived and worked in, and the amount of time we have to study and analyze.
I am not from the United States; I am a Singaporean based in Singapore; many recommended companies are unfamiliar names. Sometimes, they recommended stocks at their highs with high valuations (price to earnings and price to sales) which I was not accustomed to. They do have lots of updates and educational materials of the stocks recommended. Motley Fool Live is a very good source to learn about investing and investing mindset. Tom Gardner and all other Motley Fool analysts will keep emphasising a holding period of at least 5 years with at least 25 stocks are preferred; they hardly sell and stocks do drop; not all are winners.
How did I start investing using the Motley Fool service?
When I subscribed for the first few years, I was not sure how to use the service. Some stocks rallied strongly though some plunged. I was feeling lost with many of the unfamiliar names recommended.
Start with re-recommendation stocks. Hence, I first started to invest whenever they re-recommended stocks. I analyzed and concluded that whenever they re-recommended stocks (usually at a higher price), there is still a very good win-loss ratio and a high probability of good returns. Yes, they did well and this was how I started.
Start small. I develop my own “rules” to start with: start small to learn and get comfortable than going for profits. I start with each position with just 1% or less of the portfolio. For those recommended for the first time, I would consider investing $x. For those that I am not so convinced or unfamiliar with, I may have a lower allocation (say, $0.7x) or skip. For those stocks whom they re-recommend, I would invest with a high allocation. For some who may drop beyond a certain percentage or stagnate and I am not comfortable thereafter, I would sell to redeploy capital for better stocks. I would also use their recommended stocks to trade when opportunities arise.
Scale-up. As I follow and invest in the recommended companies over a long period, I slowly develop my list of top conviction stocks. When there are pullbacks, I read their analysis and use technical analysis to add. Slowly, I understand their methodology and overlay it with my investing/trading strategies.
Over time, Motley Fool’s thinking has greatly influenced my strategies to a large extent. We need to have our convictions and strategies which is important when the market is pulling back and we can feel lost and confused; not knowing what to do.
Do watch Motley Fool Live. Motley Fool Live, started in early 2020, has been a great financial education channel. It has helped me to understand the stock analysis further with their deep-dives, investing process, and investing mindset. I get to know Tom and David Gardner, and many of their great analysts better. They also invited CEOs and top officers of their recommended stocks as well as well known fund managers and analysts for interviews. They help to deepen our understanding of the companies, how they analyse, how we can our emotions.
After I am convinced of their methodology, I do subscribe to their premium services where they use their funds to invest. It gave a good reference to how an investment portfolio can be managed. However, their Stock Advisor and Rule Breakers are good enough.
The investing advisory service is NOT the investing strategy but a good source and reference. We ourselves must have the conviction to buy and hold as well as to allocate the appropriate allocation.
My investment methodology
My investing strategy: Have as much conviction as early as possible to buy well, early and hold as long and tight as the investing thesis holds
A very important component of my strategy is conviction. My allocation and holding period correlate with my conviction. With conviction, add winners and cut losers. With conviction, hold the winners as long as the investing thesis holds.
What makes a great trader is someone whose idea horizon matches their trade time horizon. — Paul Tudor Jones
I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. — Stanley Druckenmiller
Soros has taught me that when you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. — Stanley Druckenmiller
It has evolved with Motley Fool’s investing philosophy and principles as the cornerstone:
1. Investing in outstanding companies is my most important criterion for investment and trading. Quality and durability of leadership, management team, and business fundamentals are very important factors in the companies invested. They will leverage, overcome, and pivot from changing economic, political, and competitive environments to emerge stronger. Over time, its growing revenue, profits, cash flows, good use of its resources, sustaining, and unassimilable competitive advantages are a validation of its superior business quality. These are the winners that should hold on tight and add where opportunities arise to realize the full potential of these outstanding companies.
2. Trim the weeds and water the flowers is analogous to cutting the losers and holding tight to winners.
3. Stock investment is asymmetrical. The most we lost from our stocks is 100% but our gains can be multiples of 100%. You just have to buy and hold tight, be patient. A few multi-baggers will easily erase a few losing stocks.
4. Investing is not binary: It is not about whether to buy or not to buy; rather it can be how much to buy or not to buy. I am a stock collector. A stock represents a small percentage of the portfolio. I focus mainly on growth stocks. The allocation may increase as I add when I become more convinced and with the increasing return from its stock appreciation.
With the list of recommended stocks from Motley Fool, I can use it with technical analysis which I am good at.
What is suitable; knowing yourself
First, we have to know our preferred approach to earning money. The exhibit below is a simplified approach to categorize our approach(es): what type of stocks and preferred holding period. Other factors would be the types of industry, country of origin of the companies to focus on.
Different people have different and confusing definitions of trading and investments. In short, it is about how long you hold what you have bought. Usually, investing is associated with longer holding periods (months to years) and trading tends to be in days and weeks.
We need to determine our tolerance to risks, having time and interest to trade and analyze, need for money, and investment objectives.
Investment advisory services: What is good?
A good investment course or investment advisory should fulfil these conditions:
▪ Proven track records It shows a track record of making money over a long period (without leverage).
▪ Proven investment methodology Their stock selection and its volatility, how are they selected, and holding period must be something you are comfortable with.
Invest in investing education
Set aside some money to invest in yourself just as we spend so many years and money on education to prepare us for our careers. Why let losses be your only education? Why make the investing journey so tough? Invest, learn, and take shortcuts.
There are lots of free materials on YouTube, Twitter, Facebook, blogs where many share their ideas and analysis freely. However, we must be able to distinguish what is good to build upon our investing approach and discard what is not good.
Illusional holy grail
Like many, I started their investment journey in search of the holy grail. However, I realize everyone is different, has their thinking and investment approach. There are many ways to make money. To keep searching can end up being confused: who is right?
Rather, knowing your preference and establishing a profitable approach to investment and trading is important. Having a trading journal becomes a pivotal part of my investing/trading journey. It provides feedback on what I invest/trade where I analyze the results, reflect, and improve.
Refer to my article: One thing I do that transform my investment/trading journey
Do not keep jumping from one method to another. Instead, learn what is suitable and build one on the other. Keep learning to improve and pivot.
Develop a virtuous profitable loop and pivot
Thereon, I replicate this approach to other stock markets and continue to improve my investment and trading craft. I am always in search of successful investors, fund managers, and analysts to learn from the best.
Stand on the shoulder of giants to jump-start your investment journey.