6 Experts Reveal Their Secrets For Building A Great Investment Strategy (for 2022)

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I had the privilege of talking with some well-known investors over the past couple months; each gave me a deep insight into their investment strategy. Today I will share with you what they shared with me – so you can set yourself up for long-term investment success!

I’m Shane, the founder of Aikido – the automated algorithmic investment platform.

Now without any further delay – let’s hear from the experts!

Simon Oates | Financial Expert

Simon Oates financial-expert.co.uk

Simon Oates is the founder of Financial-Expert.co.uk, the UK’s trusted specialist investment blog.

My advice for building a trading strategy is to keep it simple.

If you try to summarise your trading strategy on a piece of paper, you should be able to explain its objective within a single sentence, and its mechanical workings using just 100 words.

Developing a successful trading strategy is difficult. So difficult, in fact, that many now believe it’s impossible.

It’s therefore unlikely that your first hypothesis will strike gold the first time. It is more realistic that you should work through several concepts and many iterations to reach a final model.

In contrast to this frank perspective, you commonly see traders who are stubbornly anchored to their initial strategy and are forced to reshape, augment and lengthen it to account for exceptions during back testing.

The result is a Frankenstein approach that loses all coherency, and while it technically stands up to 100 years of data, it no longer works for any intuitive reason that its owner could explain to you. Rather, it works because it has solved the simultaneous equation laid out by the finite historic data that has been used to craft it, and no other reason.

A better approach is to cycle through a lot of fresh trading ideas rather than being wedded to your first trading idea and forcing it to fit.

Mo Rassolini | TrendScout

Mo Rassolini Trendscout

Mo Rassolli is an angel investor, startup mentor, and co-founder of TrendScout, an award-winning crowdfunding platform that helps investors identify and connect with high-potential UK startups.

There isn’t a one-size-fits-all approach to investing. Investors have a wide range of options, from price to growth investing and conservative to riskier options. Behind each made capitalist, there’s a written, measurable, and repeatable investment strategy. However, several investors leap from one trade to another with minimal effort into creating and measuring their overall strategy.

The following principles are helpful in building a robust investment strategy to have a consistent performance and help mitigate emotional investment decisions:

First is the ability to articulate your strategy. 

To do this, you need to write your investment strategy down. If you cannot describe your process, you ultimately do not know what you are doing.

Once your strategy is written, you should go over it to make sure that it matches your long-term investment objectives. Writing this down allows you to revert to it in times of chaos, which can help you avoid making emotional investment decisions.

It additionally gives you something to review and alter if you notice flaws or your investment objectives change. Having a written strategy will help your clients better understand your investment process as an expert investor. This can increase trust, mitigate client queries, and ultimately increase client retention.

The next fundamental principle focuses on your beliefs. You should have beliefs about why investments become overvalued or undervalued and how to use those to your advantage. 

You also need special industry knowledge or purchase unique trade data that few other investors have. Or you may have beliefs about exploiting specific market anomalies like exploring stocks with low price to book ratios. Once you have determined your competitive advantage, you must decide how you can profitably execute a long-term investment strategy to take advantage of it.

Your trading plan should include rules for both buying and selling investments. Also, you must keep in mind that your competitive advantage can eventually lose its profitability simply by other investors implementing the same strategy.

Another key principle is ensuring your plan’s resilient, meaning it must perform well in all market environments. Successful investors know where their investment performance comes from, and they can also articulate their strategy’s strengths and weaknesses.

As market trends and economic cycles change, many robust investment strategies will have periods of high performance followed by periods of lagging performance. An honest understanding of your strategy’s weaknesses is crucial to maintaining your confidence and investing with conviction, even it’s briefly out of vogue.

The last consideration is if your strategy is measurable. 

It’s challenging to improve or fully understand something that you can’t measure. So, it’s vital to have a benchmark to calculate the total effectiveness of your investment strategy, and your benchmarks should match your investment objective and strategy.

Although often a long process, another thing to consider at this stage is the amount of risk you are taking relative to your investment benchmark. This can be achieved by recording the volatility of your portfolio’s returns and comparing it to the volatility of your benchmark’s returns over time.

In summary, a successful investor clearly understands why investments are either over or undervalued, and they can clearly define what drives their investment performance. 

Creating a robust investment strategy will help consistently generate long-term results when time is taken. 

Remember that trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner, and you must research and strategize to maximize your business’s potential.

Stay focused on the big picture when trading! Losing shouldn’t come as a surprise. Instead, see it as a part of the entire venture. A winning trade is just one step along the path to a profitable business, and it is the accumulative profits that make a difference.

John Kingham | UkDividendStocks

John Kingham UkDividendStocks

John Kingham is the founder of UKDividendStocks.com, the website for sensible long-term dividend investors. John first launched an investment newsletter in 2011 and prior to that, he worked as an insurance software analyst. John’s approach to high-yield, low-risk investing is based on the Benjamin Graham tradition of being systematic and fact-based, rather than speculative.

John is also the author of The Defensive Value Investor: A Complete Step-By-Step Guide to Building a High Yield, Low Risk Share Portfolio. His articles, courses and newsletter are at www.ukdividendstocks.com

My goal as an investor is to generate a market-beating combination of dividend yield and dividend growth, and my strategy has five major steps which rest upon a single foundational idea.

Foundational idea – Think like a business owner: When you buy shares in a dividend-paying company, you don’t just own some shares or an entry in your stockbroker’s database. You literally own a piece of that business.

So what should business owners do? They should focus on the financial and strategic progress of the company’s they own. What they shouldn’t focus on is short-term share price movements, which simply reflect what other people think your business is worth.

Step 1 – Find high-quality dividend stocks: Before I can invest in high-quality dividend stocks, I need to find them. For me, quality stocks usually have a handful of key features: (1) High profitability in terms of return on capital (more than 10%); (2) Long-term growth, ahead of inflation and funded mostly by retained earnings rather than debt; (3) Deep expertise, from operating a narrowly-focused core business for decades; (4) Durable competitive advantages such as network effects or reputation.

The best dividend stocks also have a degree of defensiveness, by operating in non-cyclical markets that are growing and are unlikely to be disrupted by regulatory or technological change. They also tend to have little debt.

Step 2 – Estimate fair value: I wouldn’t buy a car without knowing its fair value, so why would I buy a company without knowing (or at least estimating) its fair value?

In theory, the fair or present value of a company is the sum of all its future dividends, because a company is only worth the cash you can get out of it. The present value of future dividends depends on their size, how far they are in the future and how certain they are to be paid. I make a realistic and conservative dividend model incorporating those factors and then the actual calculation is fairly straightforward.

Step 3 – Buy when there’s a margin of safety: If a company’s fair value is 100p per share then buying at that price will leave you with no margin of safety if your estimate of fair value is wrong. Instead, if you bought the company for 50p per share then you have a significant margin of safety, your expected returns are higher and your expected risk is lower.

Step 4 – Invest the most into the best holdings: If one of your holdings has twice the expected return of another holding, which investment should be bigger? The answer is obviously the one with the higher expected return. This is why I calculate a target position size for each holding, based on their quality, defensiveness and margin of safety. I then occasionally rebalance holdings to keep them near their target size.

Step 5 – Diversify to reduce risk: The last step is to diversify to reduce risk, which can be done by limiting your exposure to any one company, industry or country.

Michael Foxy | Foxy Monkey

Michael Foxy Foxy Monkey

Michael Foxy is the author of Foxy Monkey, a blog about building wealth, tax and financial independence. He is a big proponent of the old adage that “Your money can work harder than you can”.

Trading is mostly seen as a sprint, but in practice, it’s a marathon. There are hundreds of investment strategies out there.

They say the best trading strategy is the one you can follow through thick and thin.

One you can stick with.

When the going gets tough, the tough get going.

It’s a challenging environment. Interest rates are on the rise and the supply chain issues have caused chaos and inflation.

The rise of ETFs and free online brokers have made the playing field a lot more accessible. It is easier to invest and trade, but not easy to win.

The old investment wisdom of buying wonderful companies at wonderful prices still holds true.

But most people don’t have the knowledge, the time or the appetite for trading – so they just buy index funds. Nothing wrong with that.

S&P 500 returned almost 27% in 2021, and that’s after a 16.26% return in 2020, in the midst of a pandemic.

Probably the most boring choice out there but it does the job and does it well.

Deepak Tailor | LatestFreeStuff

Deepak Tailor latestfreestuff

Deepak Tailor is the founder of LatestFreeStuff.co.uk and a leading voice in showing people how to save money, make money and helping people find new ways to invest. His sites attracts over 1 million people a month and they have over 800,000 fans on social media.

There are many different types of investments including stocks and shares, property, ISAs and so many more. My favorite one is using a strategy called “Dollar cost averaging”. 

It involves periodically investing a fixed amounts into your portfolio regardless of the state of the current market. For example, it could be £50 per month or £100 per month.  In essence, investing a fixed amount across a longer period produces greater returns, in comparison, to a lump sum investment in one go. 

I want to emphasize that you should continue periodically investing despite changes to the market. Below you can see a graph showing the fluctuating value of stocks and shares of the S&P500 account over one year. There are just as many dips as well as spikes; this is because over time the world economies fluctuate, and the value of shares goes up and down as you can see from the graph below. 

This is not something you should not be concerned about, as if you are investing every single month without changing it then the only question you need to ask yourself is the following. Will the economy recover? History shows us that it most certainly does everytime. So try this method out and as long as you are disciplined and keep with this strategy for 5-10 years then it should work for you. 

John Harrow | FollowMyTrades

John Harrow followmytrades

John Harrow has been trading since 2010. He started off in the FX markets back when 500:1 leverage was the norm. It was a baptism of fire and it didn’t take long for him to realise that trading is not a get rich quick scheme! He now trades on a social platform called eToro so everyone can follow his trading journey.

Over the years I tried everything. I tested signal providers, I traded the news, I tried convoluted trading systems, all of which failed. So to save you time and money I’d like to give my top tips for developing a solid trading/investment strategy.

1) Avoid the snake oil salesmen. We’ve all seen them on instagram, flexing with the Ferrari, Rolex and stacks of cash. You can be anyone online, don’t believe these scam artists. These people will never show any solid evidence of a good strategy, just the odd MT4 screenshot. If it sounds too good to be true it probably is.

2) Don’t over complicate it. Trading in the stock market isn’t difficult. Look around you and look at the products you are using. Is the company who makes that product worth investing in? Are they changing the way we live? Spend some time and learn how to read a balance sheet. If that confuses you why not invest in some solid ETF’s that track the markets? QQQ and VOO can be a great place to start your investment journey.

3) Try to avoid following others. You may be thinking ‘This guy calls himself ‘FollowMyTrades’ and doesn’t want us to listen to him’. Kind of crazy I know, but what I mean is people can influence your decisions in negative ways. If you’re confident in your decision and have done your research try to avoid the outside noise unless something fundamentally changes with the business.

4) It’s a long game. This is not a get rich quick scheme. Set realistic goals and stick to them. If you see other people saying they made 200% last year, thats probably because they are leveraged to the hilt and taking big risks. Trust me, they will likely lose it just as quick.

5) You will be wrong! You have to realise that on occasions you will be wrong. Trades will go against you. If traders who get paid millions can crash the economy based on bad trades, you can make the odd bad trade as well (although I don’t think you’ll sink the economy!)

These are just a few tips that I’ve picked up over the years. Some people will be disappointed to read that I haven’t given you a trading strategy, however, everyone has different needs and you need to find your own way to invest that suits you. Some like risk, some don’t. Start off slow, learn to read charts and balance sheets, turn off CNBC and follow your own path. You can do it!

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