Ben Byrom, manager of the Ravenscroft Global Blue Chip Fund, offers some insights into what to consider before investing in stocks.
Investing in stocks or equities is a personal experience. There is no right or wrong approach, no one way is superior to another - it's a matter of personal preference. That being said, there are some important considerations if you’re thinking about investing in stocks, and the best way to start is to ask yourself some simple questions.
1. What type of person are you?
I'm personally not interested in the answer but you should be. Why? Well, finding a strategy that best fits your personality and personal preferences will give you the best chance of success. If you are given a choice between two tasks, one that fits your skill set and one that doesn't, which one are you more likely to apply yourself to and excel at? It's the same with investing and the way you pick stocks. Don't weigh yourself down in a process you hate doing. There's a good chance you'll end up not sticking to it and taking shortcuts, which could lead to poor judgements and potential losses. On the flip side, by selecting a strategy that interests you, you are more likely to stick to it - even if the results go against you.
Having a process and sticking to it also allows you to reflect on decisions and make appropriate adaptations to ensure you don’t repeat the same mistakes. This compounds the learning process, leading to better judgements and potentially more successful decisions.
Discipline and resilience are key attributes that will serve you well, especially when it comes to investing your hard-earned money. You may be surprised by the impact seeing paper losses may have on your psyche. Having confidence in what you have invested in and your process will help you better navigate those tougher periods.
2. What sort of time do you have to apply to your investments?
For most of us, time is a scarce resource. A realistic question to ask yourself would be how much time you have to dedicate to your investment ideas and portfolio. This includes researching the stocks you want to invest in, monitoring their financial and operating performance, and managing your portfolio. An honest answer here will also help you identify the most appropriate approach. For example, researching the fundamentals of a company can take a significant amount of time depending on how much detail you want to get into. If you don’t have that sort of time, you may need to choose another method to get comfortable with the risks associated with stock picking such as accessing a mutual fund or ETF that diversifies your stock-specific risks (but not your market risk).
3. What resources do you have access to and how much are you willing to spend in order to get what you need?
There is a plethora of information on the internet, much of it free. The company’s investor relations pages are a good place to start. However, if you are short on time, you may need help identifying potentially good stock ideas and doing the research. There are numerous services out there catering to different investment goals and strategies, all willing to take your money. Some of these can be cost-effective ways to obtain the information you need, but these costs also have to be factored into your expected return profile.
The cheaper your outgoings the less work your investments have to do in order to achieve the objectives you have set yourself. Beware of free services and tread carefully with social media influencers. Equally, there is an abundance of folks offering their opinions (but not 'financial advice') on social media platforms such as YouTube or Instagram. The vast majority will not be regulated and a number will have ulterior motives that you need to be wary of. Some, however, are excellent and offer additional services and community benefits, although these often sit behind a paywall.
These questions should give you somewhere to start when it comes to understanding some of the deeper underlying factors you need to consider before investing in stocks. Keep in mind that there is no ‘get rich quick’ solution in investing and that it should be a long-term commitment, particularly when investing in stocks.
If you’d like to find out more about investing with Ravenscroft, or if you have any questions you’d like us to answer, please contact us.
