Momentum investors need to have a regulated approach to following sector trends in the stock market. It is not difficult when using hindsight to see what was a trend to follow, and what was not, but getting it right at the time, that is the difficult bit. Some would say the function of forecasting is to make astrology look respectable. However following the numbers is not forecasting, and catching and identifying a rising sector correctly can lead to riches. That is why at Saltydog Investor we make our decisions based on a weekly analysis of the unit trust fund performance numbers broken down into their asset sectors. These are then reviewed on a four, twelve and twenty six week basis. Not for us decision making based on twelve month performance numbers. Keep it simple, and build a portfolio of unit trusts using a fund supermarket platform to keep your trading cheap.
To be a successful active investor you must have access to continuous up-to-date accurate information. Your decisions should not be based on rumour, speculation and hearsay. An example of the importance of this goes back to the days of sail. Clipper ships returning from the Far East before proceeding up the English Channel to London, would call in at the port of Falmouth at the western end of England. From here they would send coded messages by horsemen to the ship`s owners in London, this being the fastest method of communication at the time. These messages not only gave details of the ship`s cargo of spices, teas and exotic goods, but also as important if not more so, international news. The traders with this information then had a head start on their competitors and would be making their decisions and fortunes based on facts.
One of the most important things when looking at your investment portfolio, is to believe that tomorrow will be better than today. Try not to get disheartened when as undoubtedly will happen, you make mistakes and have failures. You must keep at it and treat these occurrences as “opportunities” to learn. There is a way to minimise the effect of any setbacks and protect your portfolio. That is to create your own risk pie-chart. Only then will you avoid the temptation (or innocent default) of ending up with too large a percentage of your portfolio invested in funds which lie in the higher reaches of volatility and risk. The more volatile your selection, the greater the risk of losing your gains when the trend you are following reverses direction. Of course you would hope to be alert to this change and take the necessary action. Better however to conduct these investing acrobats with a small part of your portfolio whilst the bulk trundles along in a safer environment. Investing should be enjoyable and not a do or die situation. You will then feel more inclined to keep at it and enjoy the benefits of time and compound interest.
The Saltydog Tugboat portfolio maintains a cautious approach by ensuring that at least 70% of the portfolio is in what we call ‘Slow Ahead’ funds. This has meant that in less than 5 years our portfolio has not only gone up over 50%, but we have successfully avoided all the market corrections.