Well, watching the detectives, yes a great old number by Elvis Costello back in the late 70’s and in terms of investing maybe something that private investors get overly hung up on; watching the share detectives.
But hang on, who are the share detectives? Well for the purpose of this article they are experts who give their advice either freely or not so freely via subscription. Now there is nothing wrong in reading about the views, impressions or recommendations of a respected guru and there is especially something really positive if you can learn and develop as an investor by building on the messages many of these articles/books contain.
Well, my first real share detective: Many years ago I used to almost hang on to every word Jim Slater said; his column in the Mail on Sunday simply used to move the markets the following Monday such was his following and for many people that was simple enough. Jim recommends Blacks Leisure, DCS & Parity; off they would go being probably marked up by 10% or so by the market makers when the market next opened.
Now that in itself was fine: after all Jim’s style was to seek out attractive companies that were in a fairly good financial state, already making real profits and with the prospect according to brokers, of continuing to enlarge those profits. Jim would explain in his articles what he saw as attractive about a company that would prompt him to highlight the situation for potential investment.
As I say that’s all well and good but as I see it the danger with an inexperienced private investor is that they may get too used to that comfort zone where a share detective identifies the opportunity and they progress no further.
Now sadly that great man Jim Slater passed away a couple of years ago but for anybody even the slightest bit willing he left behind him a legacy of teaching as exemplified by his superb book the Zulu Principle. The title itself just like the entire book had easily understandable reasoning of his approach to identifying attractive opportunities.
Our Jim was essentially a growth stock investor and of course, there are other share detectives/experts out there who have equally successful approaches to investing: value investing, momentum investing, special situations etc and their writings are available on the net either freely or via a paid subscription. The general approach is to argue the rationale for a particular stock they identify and what makes it a potentially worthy investment etc. For some private investors that’s the end of the research story, they simply pile in and buy the said recommendation; hmm, well maybe not so good if you want to develop as an investor but that’s just my opinion.
What I would urge any aspirational private investor to do is learn from the experts and not to simply follow “Captain Marvel, Tom, Dick or Harry have bought this stock so it must be good; here I go”! One thing that I regularly see on a very good subscription investment site is the reaction of a private investor when the said expert does not include a review of a company that issues an RNS that day. The reaction that saddens me is “Paul, you did not review Alchemy’s results, could you take a look at them please and give us your thoughts”. Now if somebody is a novice and seeking simple guidance or an investor not feeling confident enough to back their own judgement until said share detective give a favourable assessment, then that’s all fairly understandable but the investor in my opinion really has to move on and start to use the many resources available these days particularly on the net today to develop themselves as a serious private investor.
Now you may be reading this article and think “I am already at that stage of my investment journey, I already do my own research”, well that’s fine and with sensible risk management I suspect you will have significantly increased your chances of achieving acceptable investment returns. However, for those that have yet to start to dig into the world of doing your own research as they say, there is just an incredible wealth of stock information available. Sites that I find to be particularly excellent are Sharescope/SharePad and Stockopedia. Yes, you have to pay a subscription but the data is good, reliable and as time progresses, easily understood with the added benefit of a team of helpful experienced staff who whilst not telling you to buy this or that stock will provide a supportive environment for you to learn and gain the confidence to become hopefully a share detective in your own right.
What are the risks and rewards of developing yourself as a more independently minded investor and I am not talking about the gamblers who invest in the roulette of AIM resource stocks, blue sky/jam tomorrow companies. One of the risks is that possibly half of the time your investment decisions won’t turn out to be winners; they will need early and ruthless management. Half, oh dear I hear you say but if you were to keep an eye on these highly followed share detectives you will soon become aware that:
Even with these mistakes and in the second case “rush of blood to the head”, the private investor can learn two incredibly important lessons:
What really matters is how these expert guys or indeed yourself handle those less than good investments and how they nurture their success: again lots of share detectives freely give their approach to these situations that as investors, we encounter all of the time. Unfortunately, even some share detectives remain foolishly optimistic about a favoured, I should really say loved, stock when the momentum clearly indicated that one should head for the exit door; the expert may well be fallible and the emotional illogical part of the brain overrules cold unemotional logical reason.
If you have hung on to this article and got to this stage, then I would suggest that for any investor to really improve that they should certainly not simply blindly buy into whatever stock our detectives particularly like but to rather learn from their methodology & what wisdom they are so kindly and freely sharing. By all means, ask questions, be curious and above all try to develop yourself as a private investor capable of identifying attractive opportunities. The key messages from this article are:
Anyway, before I close, I will leave you with a small reading list that in my world is a dynamic list as it changes as all too rarely an excellent book or worthwhile article emerges. It’s not an exhaustive list but hopefully one that you may find useful:
The writings of Jim Slater
The books by Robbie Burns; The Naked Trader
The reasoning and exposure over the years by the superb Terry Smith: do you know, I am certain that Terry would take it as a compliment if I described his approach as boring; I just love boredom in my portfolio.
The articles and wealth of guidance on Stockopedia including the excellent teaching of Paul Scott.
A couple of very recent yet excellent publications: The Art of Execution by Lee Freeman-Shor and Phil Oakleys just published book How to Pick Quality Shares.
Also very much worth a listen once you tire of Elvis Costello are the podcasts from Conkers Corner where he interviews private investors who describe their investment journey.
A number of very good blogs also exist written by private investors and they are well worth a read and in my view far more worthy than the often poor articles written by lazy journalists in the investment magazines or newspaper investment sections.
If you managed to read right to the end of this article, then we'll done and I hope you find the thoughts contained useful.
Welcome to my Blog Page - I hope you find my whittling on to be of some interest. I am a private investor who is happy to share thoughts on the market and individual stocks. Please remember that I am definitely not offering tips or investment advice.