Tuesday, February 28, 2006

Lift Your Investment Returns

In addition to the planning items I've recently discussed in the last two postings, there's also another way to raise your investment returns.

And that is done by analyzing what you have done with your portfolio over the past while, perhaps a year or so. Because if you stop to look and think about your various trades, you'll probably be able to glean some insights into your own investment personality.

For instance, you might find that you are drawn to the latest and greatest growth story, something that was discussed in the fascinating research paper, The Seven Sins of Fund Management as Sin Number Six, or you might be more subject to Sin Number Five. Whatever; the point is that if this particular investing flaw is causing you to have a lower than potentially possible return, then you need to do something about it. And that can only be possible by realizing you are doing it, looking at it, seeing it, and hopefully choosing a strategy in the future that allows you to minimize its effects.

On the other side of the coin, analyzing your pattern of trading and investing also allows you the opportunity to exploit your strengths to even greater advantage. You might find that you are doing one thing particularly well, that is adding some dollars to your investing each year. If you realize it, you might be able to figure out a way to take even greater advantage of it.

In an analysis of my own investing over the past year or so - done by looking at all my trades - I came to certain conclusions, some of which are as follows:

Right things:
  • I accurately over-weighted my portfolio when I found a cheaply-priced (ie low pe) fast-earnings growing stock (but I could have done this even more, I see in hindsight);
  • I accurately purchased additional position, when I saw a stock
    suffering from a temporary weaknesses.

On the other side of the field, some of my bad habits were:
  • Bought too many micro-cap "story's", that lacked adequate net earnings and these returns impaired my overall return (and also increased my propensity to trade often);
  • Bought some expensive (ie high pe) fast-earnings growing stocks, and that also impaired my returns.

The point here is that I've looked at both things I done right, and mistakes I've made in a considered way. In the future this should allow me to do, respectively, more of the first, and less of the second. Thus improving my overall investment returns. If you do the same, you'll see certain things you have done, or habits you have, that become more obvious to you. This allows you insight into your investing style and worries - thus providing you with the opportunity to raise your future investment returns by modifying your behavior.

A little more on this topic later ...


The Confused Capitalist

No comments: