In this series, we’ve asked Covestor managers: “What is the single most important lesson you’ve learned about being a successful investor, and how do you try to apply that today?”
Author: Robert Preston, Craigmillar
Covestor model: Global Clean Energy
The most important lesson I have learned is to maintain commitment to a strategy, while understanding the strengths, weaknesses, opportunities and threats to that defined strategy. This awareness came after many years trying to outperform the market and from my academic studies.
In investing, one first has to recognize that absolute measurements are irrelevant. Unless there is a competitor on the field, you can not say you have succeeded. The competitor is called a benchmark, that is established before the game begins and continues to measure one’s success throughout the total time frame. This time frame is also an important aspect of defining “successful.”
Typically, the markets come in cycles whereby they rise, flatten out, fall, flatten out and rise again, similar to the spin of nature. So to be considered a successful investor, you have to outperform a predetermined objective over a meaningful period of time.
My single most important lesson is maintaining belief in a long-term trend to understand your objective, select a strategy and measure your progress appropriately.
I attempt to apply this lesson to my current investing. The challenge in applying this process comes usually from my lack of patience or from external sources.
Building a strong portfolio requires original research. Your research needs to be based on your own understanding. This allows for a consistent process of selecting candidates that may go in the portfolio.
The most important aspect of a portfolio is not just past performance, but rather the process that should be consistent in producing the past performance. Once a company’s objective and strategy is understood, and its historical performance measured (without any significant change in management), a company’s stock can be measured versus other companies in similar situations.
The challenge to this process is the time in following not only the stocks in the portfolio but the many other stocks that could be selected. This is an ongoing process of research – understanding the technology, markets and people. This is why it is important to have a long-term trend.
A long-term trend allows for a better understanding of the opportunities and threats within a given country, sector or stock. This trend allows for a consistent benchmark in an ever-changing world economy. In a way, it acts as a rudder that can easily move the boat during volatile times.
Bottom line is I believe you have to be patient in investing, stay committed to your strategy, and make every effort not be influenced by external sources.
