Investment success is all in the planning

By Grace Ormsby

February 17 2020
Share

A trading expert has offered some insight into the world of shares, highlighting just how important a plan can be for successful investing.

Investment success is all in the planning

Speaking recently about the characteristics of successful investors on the nestegg Podcast, chief market strategist at CMC Markets Michael McCarthy said that while there is a huge variety of successful approaches to the investment market that depend on a multitude of factors, they all have one thing in common – an investment plan.

The expert trader said professional hedge fund investors and proprietary traders are always working towards the development of a tried-and-tested plan.

“They start with a plan, start implementing it and turn it into a process,” he outlined.

Acting according only to an investment plan is key to success, according to Mr McCarthy, even where investment plans “can be wildly disparate”.

“For some people, it’s a set and forget – they know they’re going to be in the market for 25 years at least, they simply identify stocks that they might want to own, and when those stocks are sold down, they add them to their portfolio.”

For these types of people, “they might have a few alerts around the quality stocks they like”, but also might not look at the market for months at a time.

Mr McCarthy has acknowledged himself as someone who sits at the other end of the spectrum, finding it hard to look away.

“One of my challenges as [an] investor is not to turn my portfolio too much,” he said.

For someone such as himself, a plan becomes all the more important to stick to.

“Now, that involves not only implementing the plan in the market, but reviewing our investment activity,” he explained.

It’s important, especially so for more active traders, to revisit transactions after the fact.

He advocated for querying, “Did that purchase really fit my investment plan?” each time you make a trade.

“Comparing it to what we pre-decided should be part of the plan and deciding if our actions are consistent,” he offered, emphasising the importance of refining the investment process.

And for more active or involved individuals, that process might involve checking the market every day at 5PM, identifying any possible opportunities and then rechecking the market at 10:30 the next morning to see if any of those opportunities are lining up, and then trying to leave it alone in between,” Mr McCarthy outlined.

With markets teaching cruel lessons at times, Mr McCarthy also discussed the unavoidable impact our emotions can have on our investment outcomes.

“The problem, of course, for investors is [that] when our portfolio value is plummeting, it hits us hard. We feel fear, we can panic,” he acknowledged.

As a result, “getting the balance right between understanding what our emotions are telling us about the market, but acting according only to our investment plan is key, once again, to success”.

This is where tools can come in to protect investors, according to the professional investor.

“For those of us who are prone to be overactive in the market”, Mr McCarthy flagged how “we can walk away”.

“Things like stop-loss orders are very powerful risk management tools that allow us to go about daily business if we’re not involved in the markets, and still know that we’ve got some safety in our portfolio,” the trader offered.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

sections

most read

sections

most read

sections

most read

sections

most read

sections

most read

sections

most read

sections

most read

Most read

Age Pension increase prompts Australians to review their finances

Latest Podcast

Investment firm raises $9bn for global special situations fund

Resources

There is $17.5 billion in lost and unclaimed super across ...

Invest