Personal Investment Guidelines

Fitz123

Hi there,

First time poster in this forum so go easy !!

I'm just looking for advice / recommendations on my personal investment guidelines. I am a relatively novice investor only ever having previously invested in employer APSS's, employer share options and with no proper analysis made some cash on bank shares last year.

I have been thinking more and more lately about investing, and have done some initial reading. Horizon of investments will be for the long term.

The following are my main criteria;

• Euro denominated investments only (I dont have the time or inclanation to understand or predict FX)

• Dividend paying stocks, with preferably increasing dividends
• An industry that I feel I have some level of understanding of.
• Low levels of debt.
• A relatively liquid stock, with decent levels of daily turnover.
• Senior managers with decent equity holdings in the company.
• A PE ratio not totally off the wall relative to their industry.
• No micro cap stocks

These are my main criteria, there are more e.g for a retailer I'D look at stock turnoever levels compared to industry etc. (They may be slightly Warren Buffety as I was reading about him last week !)

Obviously I may be missing out on some opportunities as a result, but as a basic set of guidelines for a novice, how do you think they look ?

Also, have any of the more experienced investors here started off with a basic set of guidelines but expanded upon them as they picked up more knowledge and experience.

ixus

Fitz123 wrote: »

[*]An industry that I feel I have some level of understanding of.

You'll have to help us out here....What industries do you have an understanding of? Can't be guessing!

Your criteria appear very suitable for the type of investing you discuss. This book is something I would consider a must read for you:
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel

Fitz123

Thanks Ixus, Ben Graham is on my list of must reads alright.

Well I work in the financial services field specifically insurance, so have an understanding of that area.

However by saying industries that I have an understanding of, I would read annual reports, industry magazines, autobiographys of company founders/ceos of not alone the company I am interested in, but also it's competitiors. If I know anyone working in the industry will talk to them too.

Basically if after carrying out the above research, I still don't understand how a company makes it's money and feel confident enough to complete some models like Porters 5 forces http://en.wikipedia.org/wiki/Porter_five_forces_analysis, then the company isn't for me.

I am in no hurry to rush in and buy any shares but willing to do my homework first.

dunkamania

you appear to be suffering from some bias in your decision making.

http://www.investopedia.com/terms/b/bias.asp

http://www.investopedia.com/terms/h/homebias.asp

In particular,
Home Bias - you are focusing on Euro denominated stocks.
Familiarity Bias - you are focusing on industries you are familiar with.

Fitz123

Thanks for your reply Dunkamania,

Maybe I'm giving the wrong impression, I am very willing to invest in a variety of different industries. However, as part of my research if I feel I can't understand the industry and therefore get an idea in my head of the future risks companies within the industry face, it's not for me.

Regarding home bias, I accept that is an issue, and expected it be raised. I have had share options in the past, where once exercised the share price gain was eroded by FX movement. I know the opposite can also be the case.

I do not expect to have more than a small % of my investments in the Irish market, expect it to be mainly Germany / France etc. Do you feel this is still too concentrated, and that a percentage should be invested in GBP/ USD denominated equities ?

hmmm

At least you've avoided the main trap and are doing some research first, well done.

Always start with stating your objectives and the degree of risk you are willing to take on. From there, the possible investments & portfolio structure become apparent.

You'll avoid a few disasters if you spend some time reading first. There was a book thread on here recently, that has some good suggestions & this will help answer your question on diversification. As to whether you are too concentrated, "yes" is likely to be the answer - most normal portfolios these days will be fairly geographically balanced, with varying levels of risk achieved by balancing emerging stocks versus developed markets.

Outcomes are what matter when investing. A boring index fund purchased through a pension vehicle may be the easiest way to achieve your aims.

Your criteria for selecting stocks are similar to mine, although I'd mostly invest through index tracking ETFs these days. I like growing dividends, but remember these are taxed as income. I'm not bothered about PE ratios for quoted companies, low debt and good cash levels are important. I avoid companies with any hint of funny business in related party transactions or any hint of SEC trouble.

Raskolnikov

Fitz123 wrote: »

Euro denominated investments only (I dont have the time or inclanation to understand or predict FX)

Personally, I don't worry too much about FX. Usually, stocks will rise and fall in tandem with currency movements, negating the movement.

Fitz123 wrote: »

Dividend paying stocks, with preferably increasing dividends

Unless you're looking at an income from investing, then dividends aren't really relevent at all. Personally, I prefer stocks that don't pay them, taxation is a bitch.

Fitz123 wrote: »

[*]An industry that I feel I have some level of understanding of.

If a company is cheap, has a long-term track record of good earnings, then not understanding the business wouldn't deter me. For example, I have no idea how pharamaceuticals are developed, but if one came around with the right cash flows, I wuld invest.

Fitz123 wrote: »

[*]Senior managers with decent equity holdings in the company.

Do not worry about this whatsoever. Most fund managers are idiots or glorified index trackers. If you look at their performance in 2007-2009, most of them got absolutely roasted alive.

Fitz123

Thanks Hmmm, good advice there, point noted re Income on dividend re CGT on normal gains. (Hopefully neither will rise too much on the 7th of Dec !!)

hmmm wrote: »

As to whether you are too concentrated, "yes" is likely to be the answer - most normal portfolios these days will be fairly geographically balanced, with varying levels of risk achieved by balancing emerging stocks versus developed markets.

Just on the above point, if I do invest in euro demoninated stocks some of these are potentially going to be large cap companies with exposure to a number of different economies, and will not be overly reliant on their home markets. Would this in your opinion provide more balance or should there be companies, located in other countries be they US/UK/Japan/BRIC etc ?

Fitz123

Raskolnikov, thanks for your reply, plenty of food for though.

Raskolnikov wrote: »

If a company is cheap, has a long-term track record of good earnings, then not understanding the business wouldn't deter me. For example, I have no idea how pharamaceuticals are developed, but if one came around with the right cash flows, I wuld invest.

Just on this point, I would have less than no idea how they are developed either, but what I would want to do to understand more is. Look at their patents on major drugs and see how long they run before competition from generic drugs etc. Look at their future drug pipeline, and try to see where they are e.g. FDA approval etc. Are there any major lawsuits on any of their existing drugs etc etc. And yes of course, cashflow is key.

Raskolnikov wrote: »

Do not worry about this whatsoever. Most fund managers are idiots or glorified index trackers. If you look at their performance in 2007-2009, most of them got absolutely roasted alive.

By senior managers with decent equity holdings in the company, I meant do company directors appear to have a large portion of their wealth invested in the company, have they been selling off large portions of their stock lately, if so why ?

Raskolnikov

Fitz123 wrote: »

By senior managers with decent equity holdings in the company, I meant do company directors appear to have a large portion of their wealth invested in the company, have they been selling off large portions of their stock lately, if so why ?

Sorry, I thought you meant portfolio managers.

I used to follow insider buying a lot, but my experience on 2007/2008 has led me to believe that very often insiders actually get it wrong (they were big buyers at high prices and sellers at low prices). While I don't think it should be ignored, I wouldn't put too high of a weighting on it because very often, a great manager might not even realise the stock of the company is worth buying.