I’ve been thinking about starting a new thread about our investment strategies… because the old Inderes forum had an excellent thread where Inderes analysts shared their long-term strategies (allocation, goals, etc., etc.).
To start, I’ll put the core part of my investment strategy here, the so-called golden rules, which are written in my own investment plan. They have been compiled based on literature and Inderes investment school / instructional videos. I believe that, for example, in a difficult market situation, a written investment plan and strategy is the only way to keep a cool head. That’s why it would be good for us to share our own strategies and at the same time gain new perspectives. It should also be mentioned that my long-term goal is set for the 2050s, keeping a retirement portfolio in mind. Let’s see if this sparks a discussion!
Invest only money you don’t need for daily living.
Stock picking, because we are seeking excess returns. Exploiting fear/greed overreactions. Utilizing Inderes analyses in one’s own discretion.
Purchases with a medium-term horizon (1-3 years).
Main focus on OMXH small-cap/mid-cap companies. Excess returns can be made there.
Aim to buy before the general public.
Utilizing home-field advantage and the position of a small investor. Trading time is completely flexible. We wait patiently.
Fair value determination must be based on a deep analysis of the business.
Safety margin of approximately 20% (purchase price vs. fair value).
Mr. Market is a servant, not a master. He offers opportunities for trading.
I’ve written down 4 cornerstones for my own investment strategy:
Buy companies that invest in technology and product development.
Buy scalable business models.
Buy long-term investment targets.
Know the companies well, preferably from your own field of work (for me, it’s the IT sector) because you’ll gain an advantage from your professional expertise.
Uncle Masse has come to the conclusion that non-professional small-scale investing is pretty much entertainment, for which one can even pay a little, because in addition to fundamentals, there’s always so much sentiment in share price fluctuations. That’s why basic Masse’s investment theses are annoyingly simple. Many don’t like them, but let’s repeat them here to keep perspectives open:
Only play with an amount that you can well afford to lose, meaning everything truly needed is always in fixed assets and in the bank.
Buy what you consider cheap and in small batches, so you’ll hit the bottom of the pit and mostly dodge falling knives. Preferably buy dividend-paying companies, because if the share price gets stuck at the bottom for years, you’ll at least get dividends.
Only sell with a good profit, at least 2x the average dividend, and pay taxes obediently, i.e., don’t churn. Eventually, those taxes will be paid anyway, whether from Sipilä’s insurance wrapper or tax-churned stocks.
Leave analyses to the smarter ones, of course, it’s nice to read tabloid headlines and Inderes pages, and sometimes you even get good tips from them
So, how does one fare with this? Usually quite okay, meaning annual returns are often similar to Mr. Index. Once, Masse even beat him properly, by +15%. The current year 2018 will probably be quite weak for Masse, just a meager +, but you can always pay a little for good entertainment.
“How much you know is less important than how clearly you understand where the borders of your ignorance begin.”
“Embrace the mistake.”
I don’t feel that investing requires any particularly precise outlining of a plan or coming up with long and specific lists of rules for it. Honesty about one’s own actions and their limitations carries further.
I was a dividend investor for a long time. But nowadays I look for quality companies with a clear competitive advantage and long-term investment targets. I avoid companies that have growth but don’t make a profit. Even though Inderes’ consultants have recommended growth companies like Efecte and Qt. Too much risk for a person of my age, and I don’t have time to wait for growth companies to turn into cash cows.
Develop/maintain a buffer fund/savings account as well
Buy stocks that offer the most attractive return/risk ratio or from which you think you will get the best possible return (simple, not easy).
In a nutshell. I usually look at stocks with a view to them slipping into a ‘long-term portfolio’. There are exceptions sometimes. I usually look for companies that have a competitive advantage and preferably growth. I also like companies that have a stable cash flow, continuous revenues, predictable business operations, and preferably a defensive sector. It goes without saying that not all stocks in my portfolio meet all of the above criteria, nor do they need to.
Regarding dividends, if the dividend is good and growing in the future, all the better. The current effective dividend yield % is often not so significant.
Now, that’s a rather dangerous rule in strategy. It’s always worth selling when the expected return changes significantly. How much profit you’ve personally made on it has no bearing.
You should definitely defer taxes if possible. By paying taxes now, you lose the returns you could get on the amount of money equal to the taxes (minus taxes).
That’s one way to look at it. On the other hand, if you intend to keep your money in your portfolio (wrapper) and move it from one stock to another within that portfolio as the situation changes, then investment insurance policies are for that purpose. With them, you can maneuver within the policy as much as you want for free, and taxes are only paid when the policy is terminated. The upcoming Swedish model investment account system for stocks aims for the same thing.
Masse, however, always likes to sell, for example, with a 15% profit when a suitable opportunity arises, dutifully pay taxes, and transfer the final profit to living expenses. The remaining principal usually looks around for a bit and then moves back into the stock market in smaller increments.
Great. From an investment strategy perspective, it makes no sense, but it’s good that we have eager taxpayers. Just keep the state’s revenue side in good shape in the future, and maybe we’ll even get taxes down
Yeah, paying taxes on time is important for the functioning of society as a whole. Young people seem to be in a hurry to get rich, and it seems they’ll do whatever it takes, even if it means constantly shifting things around and delaying taxes. This attitude usually changes with age. Hopefully, the upcoming investment savings account system will sort this out once and for all.
Analysts’ and other Inderes members’ portfolios have been commendably opened through videos, Shareville, etc. Thank you for that!
However, it would still be desirable if Inderes members could open a thread here to discuss their long-term investment strategies (over 10 years). For example, allocation, strategy, investment plan goals, etc… This aspect has not been discussed much… There was a good thread on the old forum that was destroyed with the new forum software…
Inderes’ boys’ and girls’ allocations are surprisingly unsurprising. One would have thought that professionals would have found at least a couple of golden eggs, e.g., from some “unlisted growth rocket in Central America,” but no: just Finnish apartments, stocks, and a bit of cash. There was even a piece of Finnish forest among them. The shoemaker’s child, as is well known, has the worst shoes.
Home field advantage. It’s just so much nicer to own companies where you are (or at least feel like you are) always on the ball. Risk comes from not knowing what you are doing. On a softer level, it’s also great to own and support domestic companies that are growing and succeeding.
I certainly understand the downside of focusing investments on the domestic market in a few companies.
So Uncle Masse can continue to be completely at ease and not really follow anyone’s deep analyses and price fluctuations, as long as the old allocation of “own house, Finnish stocks, and the rest in cash” stays as it is
Investing is as easy as making hay—especially if you treat it as entertainment, which you can even pay for sometimes.
As a student without regular income, I keep a safe approximately 30% in cash so that the macaroni doesn’t run out of the table even if the stock market crashes. But if we look at the portion of assets that has been “set aside” in Nordnet for investments, it’s now at a full 100% equity allocation. And normally, it varies between 80-100%.
Masse’s studies were completed a long time ago, in the last millennium, which is why the allocation is quite conservative: about 60% of free cash in Finnish stocks and 40% in cash. If even the professionals at Inderes couldn’t find “Central American growth rockets” for their portfolios, Masse won’t either. Don’t even bother looking.
But if we look at the portion of assets that has been “set aside” in Nordnet for investments, it’s now at a full 100% equity allocation. And normally, it varies between 80-100%.