Those who put together their share portfolio without setting themselves a concrete goal cannot improve their investment strategy in the long term and run the risk of not optimally exploiting securities. That’s why the following steps are useful:
Investors should periodically calculate and analyze the key performance indicators, Yield, Drawdown, Sharpe Ratio, MAR Ratio, Value-at-Risk, Volatility, Number or Frequency of Trades, of their stock portfolio. This is the only way to show weaknesses and the dealer knows if the risk he has incurred so far is proportionate to the profit. For the UBS Yield Enhancement Strategy this is important.
If the measures suggest that individual features of the portfolio could be improved, investors should find and remedy the cause. Whether the measures taken are successful should be closely monitored in the following months.
It is also a good idea to set the maximum loss and maximum return for each security before it is purchased. The most common mistake of private investors is to hold stocks too long in the case of loss and too short in the case of profit. At the same time, it is not uncommon for investors to become greedy and not sell at the right time. Who sets these numbers in advance and stick to it, can outsmart his psyche and optimize the profits.
Be Independent of Tips
A stock should never be bought just because it has been recommended. This is especially true for surefire tips from friends and acquaintances, but also for the analysis of experts. Especially the advice from banks has recently come in clear criticism. This is because bank employees often work on a commission basis and consequently recommend stocks and other financial products of their own interest. Independent advice is often not given here. Here it is therefore more important to check whether a stock is actually promising. In no case should a sales contract be concluded directly.
Investors should always check the recommendations to see if the hard facts support them. The key performance indicators such as the price or earnings ratio, sales, profit, dividend yield, price-to-book ratio, cash flow, price or earnings ratio and return on equity should be examined. This should be done over the course of several years and compared to industry values. This is the only way an investor can assess whether it is worth investing in a stock.
Especially at the beginning this is undoubtedly a lot of work and the numbers can confuse beginners. Over time, however, it becomes increasingly easier to make an assessment and sort out uninteresting companies directly.
Thinking and Investing In the Long Term
Although stocks can gain or lose significantly in a matter of days or even hours, retail investors should invest as long-term as possible and plan for at least five years. Very few beginners start with intraday-trading, so long-term goals are much better in tune with the amount of time and background that private investors can bring. Long-term thinking means that:
The capital employed must be available over a long-term period. However, this is also true in intraday trade, but this is even more important for medium to long-term traders.
Shares can be acquired from companies that have not yet fully exploited their potential, and will not do so until the next few years.