Serious Investing
The advantages and disadvantages of investing in shares as an asset class are examined in detail in Section 2 of our STAR Investment Guide. The main advantage of putting your savings, or spare cash, into listed shares is that this ownership interest makes you a part owner of a sector of the economy, at least in capitalist ones, that is likely to achieve growth in financial returns that is capable of being much greater than elsewhere – except possibly in your own house (see the comparative graphs in Section 2).
The Importance of Research
However, lessons based on the outstanding success of well-known investors on the world stage (see Section 5 Lessons from the Maestros) confirms that the substantial investment outperformance achieved by these gurus, in terms of financial gains, has been achieved as a result of detailed and consistent research into the fundamental attributes of the sectors and businesses in which they have invested.
Reviewing the long-term history of investment, as opposed to financial gambling, it is clear that detailed investment research has been essential to success. Sure, there have been periods when pure speculation has delivered massive profits, but such gains as witnessed by the South Sea Bubble, the Tulip Mania frenzy, the first Dot Com boom and quite possibly the current froth surrounding cryptocurrencies and meme stocks have usually been short-lived and quickly followed by expensive collapses with those who were last in suffering the largest losses.
It is, of course, possible to make high returns from equity investment by getting other people to do the research, selection and management on your behalf. The secret to this is to evaluate the competence and success of the professional managers that are doing this for you. A handful of individual managers and their teams are excellent, a few more are very good but many are barely able to keep up with the markets and many others are poor. This problem is avoided by investing in tracker funds that replicate the composition of the market indices at relatively little cost.
Reasons for Doing It Yourself
There are, nonetheless, many reasons why it can be profitable, interesting and responsible to undertake the practical research necessary to select and manage the share constituents of your own share portfolio.
Methods such as the STAR screens and those developed by Richard Beddard have proved themselves as the means by which any investor can do better than the general market indices while keeping costs of management and dealing at exceedingly low levels provided low-cost execution brokers that operate in the largest markets are used. See Section 6 for a list of Private Investor Platforms in the UK.
It is interesting to get to know the companies in which you are a part owner as you gradually build up a really detailed knowledge of the business itself and the management. In some cases I have got to know the directors and am able to email queries about future policy. This also serves a wider public service in that contact between shareholders (as owners) and directors (as the owners’ managers) tends to improve overall accountability. This latter is an aspect that is not always a feature of the linkages between listed companies and professional managers.