Pick shares like professional analysts and prosper

Investment managers pump huge money into financial markets and spend days researching good buys. Here’s what you can learn

Investing like a stockmarket professional won’t guarantee you riches but it can put you on a clear path to building wealth.

It’s a year since the market’s COVID crash, and scores of new investors have signed up with stockbrokers and investment platforms since March 2020.

Stocks are back near record highs, so it’s a good time to think like investment managers, super funds and other share specialists do.

Investment platform eToro Australia’s managing director, Robert Francis, says many of the strategies that professional investment managers use can be adopted by everyday investors.

“Most of the information professionals source can be commonly found on a company’s website, on market analysis publications, or in (regulatory) filings for all publicly traded companies,” Francis says.

BILLIONAIRE’S ADVICE

He says both individual and professional investment managers often follow the same ethos: billionaire Warren Buffett’s advice of investing in what you know.

“The world’s best investors invest in companies they know well or are passionate about. For example, if you love tech, you may decide you want to buy stock in Apple or Microsoft.”

Davide Marcotti believes in diversifying his assets. Picture: Jonathan Ng

Professionals also look at market trends, a company’s current valuation and future growth potential, and a range of other charts and indicators, Francis says.

“There are publicly available sources of information for almost any industry,” he says.

“Often, the annual report of a company itself gives a good overview of the industry, along with its future growth outlook.

“Stock prices are often impacted by earnings reports, so in order to gauge whether a stock’s price may be moving up or down in the future, investors should know where future earnings are heading.”

Investors who don’t like information overload may instead consider options such as exchange traded funds and listed investment companies that automatically spread their money over many stocks.

Portfolio manager Chris Conway from investment newsletter Marcus Today says people can suffer “analysis paralysis” if they read too many opinions.

Conway says professionals consume a huge amount of data.

Robert Francis, the Australian managing director of eToro

Chris Conway from Marcus Today

“I know that sounds very mundane, but we are sitting in front of screens all day and have data streaming in front of us for every minute,” he says.

Building your own investment philosophy is vital, Conway says, and number one on your list should be risk.

“Define what your risk tolerances are. Can you accept a 10-15 per cent fall in our portfolio and not worry about it?” he says.

An investment philosophy could be as basic as “if my portfolio falls by 20 per cent, I will sell everything”, and whatever yours is, have a plan.

“Everyone thinks the most important part is picking the stocks, but that’s number three or four on the list,” Conway says.

First should come understanding risk, planning your asset allocation, and then examining sectors of interest.

Professional investors who mastered technical analysis skills decades ago now see that same data being slapped on computer screens in front of everyday investors.

“The ability to value a company is not the edge it used to be,” Conway says.

Today’s investors now need to focus more on sentiment and where they think markets are heading, he says.

EDUCATION PAYS OFF

Conway says educating yourself is “supremely” important, whether through reputable investment newsletters, online chatrooms, online stockbrokers or professional advisers.

“Those who have educated themselves more and have access to more information will do better than those who haven’t,” he says.

“You can carve out a bigger piece of the pie for yourself.”

Investor Davide Marcotti focuses on shares and crypto assets and believes in diversification and education.

“I educate myself by reading news articles, and listening to podcasts from some of the world’s greatest investors,” he says.

Marcotti also practices a popular strategy among long-term investors and super funds: dollar cost averaging.

“This means I gradually invest in a particular company over a set amount of time,” he says.

“This strategy has helped me many times in the past by preventing me from catching a falling knife, or investing at all-time high.”

CHOOSE THE RIGHT INVESTMENTS FOR YOU

• Invest in your interests and passions.

• Spend time researching your target companies and their related sectors.

• Keep up to date with the financial news to monitor current trends and gain insights into what’s booming and what to avoid.

• Consider a diversified approach by spreading your money across various sectors and asset classes, which lowers your risk.

Source: eToro

Originally published as Pick shares like professional analysts and prosper