Developing a Winning Game Plan
“Putting together a bona fide investment game plan is no different. Like everything in AFL, it requires a process.” says Sam Fimis
In AFL terms, a 'game plan' refers to a recognisable standard of style set by a coach that suits his/her football philosophy. Putting together a bona fide investment game plan is no different. Like everything in AFL, it requires a process. As a participant of the stock market, you have the opportunity to stamp your authority and style on your own share portfolio. What do you want to stand for as an investor? What are your non-negotiable's? What role do you want each stock to play?
It is during the intensity of September finals action that game plans are picked apart most successfully and during horrible bear markets that investors get found out. What you want is a game plan capable of standing up to the rigours and pressures of September, no sorry, a bear market.
This piece is aimed at summarising the key portfolio building principles outlined in Premiership Portfolio in a short pre-season. Below are six components that I believe that make up a bona fide game plan:
1. Preparation is a relatively small, but crucial, component of the overall process. You need to determine the capital you want to invest, your risk appetite and whether you will be seeking the services of a full service broker? What's your five year plan? What type of stocks do you want to invest in? Pretend that you're part of a footy club and have to report to a board or influential members if you have to.
Helpful Hint: Tailor a game plan that complements your personality and risk profile. It should also be tailored to enhance your strengths and avoid your weaknesses as an investor.
2. Fundamental Analysis: A football club needs talent to succeed, just as every portfolio needs talent to achieve an appropriate return. If you don't have a process to identifying talent, you're in strife. I call my process the ASX Draft Camp, inspired by the AFL Draft Combine. Companies should be put through a series of tests. Those with talent make it onto your watchlist, which should have no more than 40 on it, similar to an AFL playing list.
3. Technical Analysis: Once you have set up your watchlist with fundamentally healthy companies, you then need to put your portfolio selection committee hat on and choose which stocks will represent your portfolio on game day. Have a process to identifying trends and recognising what the opposition is doing. Your opposition is the overall market. Outperforming the market is the aim. Those stocks on your watchlist trading in uptrend are in form and should get selected, those trading in downtrend don't get a gig. Simple as that! Very important to set stop losses. Even Juddy would get dropped if he under performed for 20 weeks straight.
4. Psychology: Get your head in the right space. Your game plan is there to eliminate emotional decisions. Have confidence in your process and structures, but be open to change.
5. Execution: As fans, we get most annoyed when our team moves the ball across the ground promisingly, only to the have the passage of play broken at the last hurdle by a badly executed handball. I can assure you, one bad execution error, also known as a fat finger error, can make all your hard lead up work redundant. Have a process to placing an order in the market, it is one mistake you don't want to make.
6. Reviewing and refine your game plan is very important to constantly improving your performance. Failure to do so hinders your ability to identify what went right and wrong, what you should continue doing and what you should refrain from doing again. It's all about learning from your mistakes and identifying profit destructing patterns.
2011-2012 Brownlow Medallist
I would like to declare, Ainsworth Game Technology (AGI), as the Brownlow Medallist for the best and fairest stock on the market for the 2011-12 Financial Year after it returned 522 per cent to investors.
To be eligible to win, the company must not have engaged in any activity that may have been considered unethical or unlawful by any of the Australian regulators such as the ASX and Australian Securities and Investment Commission.
* Sam Fimis is a private client adviser with Patersons Securities and author of Premiership Portfolio: 6 Step Guide to Succeeding in the Stock Market. To learn more about Premiership Portfolio, visit www.premiershipportfolio.com
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