Rory Gillen - 3 Steps to Investment Success: How to Obtain the Returns, While Controlling Risk

The aim of this book is to demonstrate that becoming a successful do-it-yourself (DIY) investor is within the reach of almost every person in society. The global credit crisis of 2007-2009 left most investors even professional investors with deep scars. It also provided would-be investors with reasons to remain on the sidelines. However, if our aim as investors is to increase our understanding, to take control of our own finances and investments, then the 2007-2009 years provided us with an important lesson: that an understanding of risk, and control of risk, is as important as our search for returns.

Stock markets can be a rollercoaster. Downturns bring volatility and uncertainty, which can impact on your confidence, judgement and desire to invest in a certain asset class. Bull markets do the opposite and bring over-confidence, tricking you into overlooking fundamental information. To maintain and grow your assets consistently, you need an approach that controls risk, reduces emotion, can be managed in a busy life and takes account of the significant volatility that is part and parcel of stock market investing.

Regardless of whether you are a novice investor and just getting started, someone who already invests in the stock markets, or someone working in the financial services industry, this book aims to improve your understanding of what is required to make a success of investing.

Saving or investing in the stock markets is for everyone from parents with the childrens allowance, to someone who has a lump sum to invest, to the person who has just started working but can save even 100 a month, to someone who is free to manage their own pension. Building an asset base from which you can earn income gives you choices later in life. My aim is that, when you close this book, you should be able to implement an easy-to-follow approach to investing in the stock markets, whilst minimising risk. No matter what level of experience you are starting from, this book is aimed at assisting you to obtain the returns on offer from the markets over time.

The advent of low-cost, online dealing has substantially lowered the cost of investing in markets. The Internet also has made it easier to access independent investment advice. If you wish to be a DIY investor, to reduce your reliance on product sellers, then the tools are now readily available to you.

APPROACHES TO INVESTING IN THE STOCK MARKET

Arming yourself with a proper strategy or plan, which dictates what you buy and when you sell, is the key to stock market investing, and developing one is a good deal easier than you may think. That plan might be simply to invest across the different asset classes where there appears to be clear value on offer; to concentrate on high yielding funds listed on stock markets as a method of generating income, while controlling risk; or to master some successful approach to stock selection similar to the one I outline in Chapter 21, Value Investing in the FTSE 100.

Most private investors underestimate the challenges of identifying suitable individual companies (shares) to buy and when to sell them. This book outlines why this is and offers an easy-to-follow mechanical approach to selecting a diversified portfolio of stocks from the UK FTSE 100 Index, an index that represents the 100 largest companies listed on the London Stock Exchange by market capitalisation.

Whichever approach you choose, you must realise that there is no silver bullet for investment success. You must have a plan, keep your emotions under control and have the discipline to adhere to your plan over time.

Over the years, the question that I have consistently tried to answer is: how can the ordinary private investor succeed with limited time, little understanding of company accounts and no access to management? For that is the true test as to whether stock market investing is for everybody or just the knowledgeable few.

Always bear in mind that it is the companies that produce the returns that the stock markets deliver, not the professional fund managers, not the speculators, not the media or individuals with inside information. It is the companies that generate the returns, and those returns reflect the growth in their profits, cash flows and dividends over time. You simply have to own a diversified list of them, either directly or through funds, to obtain those returns. Many private investors fail to do just that. For a variety of reasons, they get side-tracked.

You will learn also how to invest in the stock market indirectly through listed funds, such as exchange-traded funds and investment companies, which offer instant diversification, allowing you to more easily control risk.