Investment Advice UWIG

Step one Have a strategy, stick to it Most investors end up performing poorly because they either don’t have a strategy, or they have one and don’t follow it properly, letting emotions dominate their decisions The result? Buying high and selling low Plan ahead and follow the plan, this takes emotions out of investing Make sure you have a plan both for buying a stock, and selling it (your plan might be to never sell it) People expend most of their efforts trying to value a stock in order to figure out a good price at which to buy So when do you sell? Figure it out in advance and you’ll do better over the long term

What Strategy Should you Follow? Depends who you are Don’t have much time to follow markets? Buy an ETF Good for diversification You won’t beat the market, but you’ll get the market return at the lowest possible cost, which already puts you ahead of most investors Think you know a bit more, but still don’t have time to research individual stocks? ETFs on specific industries Many industries go in cycles, you can buy when they are out of favour and sell when they perform well WARNING: investors are terrible at market timing (Don’t expect you will consistently buy low and sell high)

What Strategy Should you Follow? Lots of time, lots of knowledge Value investing is the way to go This is how Warren Buffett and many other successful investors made big money They did over a long period of time Many believe this is the best way to invest, period

Value Investing If you’re a value investor, sell when the price exceeds your valuation for the company If you’re investing for the very long term, just buy a company that will survive long term and never sell it, collecting (and reinvesting) dividends all the way. Want to learn about value investing Read Security Analysis, by Graham and Dodd

Growth Investing for growth Look for high ROE (NI over book value of equity) This is a measure of the return a firm earns on its past investments This is the firm’s version of compounding. High return, reinvested into the firm. Misconception: Investing for growth is all about “finding the next big thing” or you have to invest in venture stocks or penny stocks, or some other speculative approach This is far too risky, and more likely will be a huge waste of time and money. Better to find established firms that have a high ROE, as this compounds over time Great example NIke

Nike Founded in 1964 In 1985, already over 20 years old, had 50% of the US shoe market (went public in 1980) This was not a small company If you bouth $5000 of Nike stock in 1985 it would be worth $2.5 million today

Options If you insist on taking on more risk Learn about options trading Lots of upside, limits your losses although you could lose your entire investment Can also be used as a type of insurance, to protect your portfolio from losses Selling options can add extra income to your potfolio

Other Strategies Day trading (Don’t do it, you won’t beat computers) If the stock/option doubles in price, sell half your position, you can’t lose Many successful investors also know when to sell a loser This is important for preserving your wealth and minimizing losses One possibility: 25% trailing stop, means selling the postion when the stock falls 25% from its high after you buy it