How I Achieved A 100% Stock Portfolio Performance — With 7 Rules
I tried it all: fundamental analysis, long-term investments, day trading, CFD trading, technical chart analysis, options, …
Yes, I love spending some time on stock investment topics. But to be honest, it did not pay off!
But then, after almost 20 years of stock trading, one evening changed everything! I was reflecting on all my deals. And I came up with a clear pattern of success.
I created my “little investment handbook”. It is working for more than 5 years now. And, as you can see from the performance chart below, it is also paying off!
Rule 1: Read about future business models — not technologies
Understanding the drivers of future business models is fundamental to make suitable investments.
If you don’t understand a companies business model in detail, then don’t invest. Don’t feel demotivated! We all have different skills and experiences. Maybe you have to scout within a different industry that you understand better.
Don’t mix up technologies with business models.
The question is not if a company has applied the newest technology to its products or services.
The critical question is if a company can disrupt existing business models. Or break-up established value chains and revenue streams. Or if a company is about to create new needs and can monetize new market segments.
Maybe new technology can enable a new business model. But, technology alone has never been a guarantee for an outperforming stock price.
Rule 2: Target investment cycle is 5–10 years
Having an investment period of 5–10 years in mind will help you to identify the right kind of opportunities.
This does not mean that it will take 5 years until you make a profit! It is more about calibrating your mindset and way of thinking for the next steps.
Discovering market segments that are at their tipping points in terms of new business models is what we are looking for.
There is also a nice mental-health-side-effect coming with this 5–10 year-mindset: You don’t have to care about the daily share price anymore. That’s relaxing when you did some day trading experiments before…
Rule 3: Identify the industries first — not the listed companies
Ok, you have spent some research time on future business models. Now, you can make up your mind which industries or sub-segments will be affected the most in the future.
The bigger the market segments are today, and the more big corporates are serving those markets, the better. Saturated markets are often a breeding ground for disruptive business models. Some saturated industry examples: Insurance, car, banking, health, travel, computers, software.
Also, look at “emerging industries” that are about to grow into mass markets. Examples of the past: Mobile phones/smartphones, internet, music & video streaming, computer chips, robotics.
“Ok, nice examples of the past. But what’s the future?”
The good news: We never had so many mature technologies at the same time. And we also never had such a speed of change within the industries.
The challenge: You have to make your investment choice out of this :-)
Here is just some selected food for thoughts of affected industries and their corresponding technologies:
- Manufacturing — 3D Printing, Robotics, Internet of Things
- Science, Process Automation, Health — Artificial Intelligence
- Computer, Software — Cloud Computing
- Energy — Electric, Hydrogen
- Banking, Legal — BlockChain
Rule 4: Rank the industries and buy at least 3 shares per industry
Create your longlist of industries. Afterward, it’s time for ranking it:
“In which industry can companies achieve the biggest business impact? Based on new business models? Within the next 5–10 years?”
There is a significant mind shift coming with this approach: You believe in an industry trend — and not in one single company. Also, you are benchmarking different industry trends against each other. I think it’s way easier to come up with prioritization for industries than for single companies in the first step.
Ok, your industry ranking is ready. Now, it is time to search for public listed companies within these industries.
Invest at least in 3 different companies per sector. You will not be able to identify which company will make the race up front. With buying at least 3 companies, you significantly split the risk.
How does this look like in real life?
One of my top-ranked industries was social media some years ago. So I bought: Facebook, Twitter, LinkedIn, IAC Interactive — and I recently added Pinterest.
Today I believe in fintech & payment. So I bought: Adyen, One Connect, Lemonade, Shift4Payments, Envestnet, Worldline, Blackline. Yes, I also had Wirecard in my portfolio ;-)
Rule 5: The company’s earnings are not vital for an outstanding stock performance
For younger public listed companies, making profit is not essential.
Today’s most successful stocks have often made losses over a decade in the past. But they gained millions of customers. Or set a new stage of making business during this time: Amazon, Facebook, Tesla, Spotify, Lemonade.
Rule 6: Always invest the same ticket size per share
When buying shares of 3 or more companies per industry, I often made the same mistake: I thought that a specific company might be positioned better than another.
So, I invested more money in one company than in the others within the same industry. Looking back, I would now always invest the same ticket size. I would have had a way better performance by following this rule!
Rule 7: Sell with stop-loss orders and re-invest
As said before, we should always invest with the 5–10-year-mindset. However, sometimes there are unique situations in which you want to take advantage of.
For example, in times of a general market consolidation when the whole stock market is going down. You want to have some cash now to make a good re-invest at a better price. Or when you have identified a more promising industry trend in the meantime.
Working with stop-loss orders works perfectly. However, I only place a stop-loss order for a dedicated share when it has made at least a 100% performance. Otherwise, I stick to the 5–10-year-mindset.
In case some individual stocks really outperform, like 300–500%, I always make some partial sales to have cash for new investments. Looking back, this has been the most critical lever for the overall portfolio performance. After some time, you can finance new investments out of your existing portfolio.
One more thing… — Will this formula work for you?
There are so many promising formulas out there about how to make money out of stocks.
I have been investing in stocks for more than 20 years now. Trying out a lot of different approaches, taught me one key lesson: Find the formula that fits your character.
If you choose a method that is in line with your way of thinking, you will be much more successful and achieve outstanding results.
You can be super successful with this little investor handbook. But, maybe you are even more successful with another approach that fits better to yourself.
DISCLAIMER: NO INVESTMENT ADVICE
The content of this article is for informational purposes only. You should not construe any such information as investment or financial advice. Nothing contained in this article constitutes a recommendation to buy or sell any financial instruments.
