Expert advice for first-time investors: Know when to hold them

The phenomenal growth of retail investment platforms has unleashed a wave of new investors onto the sharemarket.

Perhaps the best known of the local platforms, Sharesies, started the year with just 95,000 users.

By March, the number had risen to 115,000.

This month, Sharesies has 259,000 users on its platform, who have invested $889 million.

Many of those investors will be new to the game.

The Herald spoke to some seasoned fund managers to get their views on the kind of principles that first timers might find useful as they build their portfolios.

Frank Jasper, chief investment officer at Fisher Funds and a former sharebroker, says the important thing for investors is to be clear from the start about what they hope to achieve.

“Be clear about what your investmentphilosophy is, what is that you are looking for in a company, and to be quite thoughtful about how you search for those attributes,” Jasper says.

“As you own that investment, watch for that story to unfold and compare that news flow to what you expected to happen.”

Jasper says the common problem with first-time investors is that they take a “scatter gun” approach, rather than seeking out certain types of investments that may return a certain amount over a certain time.

Get a notebook

It may sound simple, but Jasper says investors need to get an notebook and write down what they are thinking, and then test that thinking against what actually unfolds.

“You might start to write down a checklist as to what things that you might be looking for.

“If I buy XYZ company, what was on my mind when it bought it?

“The checklist, or the thesis, can then be referred back to when things go well, or when they don’t go so well.

“Then at least you know why you did what you did, so hopefully you can learn some lessons from that.

“In a sense, that’s what we do,” Jasper says.

“We have a very clear sense of what we think adds value to markets and find stocks that fit with that philosophy.

He says be diligent about writing down the “why” every time.

“Why do we own it? What do we think is going to happen? What do we like about the management team?

“And when a piece of news comes out, hold that up like a mirror to the story that you had in mind.

“Am I right? Am I wrong? Have things become better or worse?

“Base your buy or sell decisions on that.”

Jasper says first-time investors’ portfolios often don’t make sense, representing a hodge podge of ideas.

Water the plants

“How do you make money in financial markets? You keep watering the plants and pulling out the weeds,” he says.

“Unfortunately, most private portfolios are almost the exact opposite, where people pull out the flowers after making a 10, 20 or 30 per cent gain.

“Conversely, it is common to see investors hold on too long, waiting for it to come right.
Jasper says each bit of the portfolio has a job to do.

“If you are going to start investing in the sharemarket you might want to build at the core of your long term savings – a portfolio of pretty safe and secure, blue chip style companies.

“Companies that have got a track record of profitability, but are reasonably valued, that have got genuine history and what you know are going to be around in 10, 20 or 30 years time.

“It does not mean that you can’t have some fun in the market and buy some more speculative names, but just be clear that is exactly what you are doing – transitioning from being an investor to buying lottery tickets.”

A free hit

Jasper says a properly diversified portfolio is a kind of a “free hit” for investors.

“If you properly diversify your portfolio, it dramatically reduces your risk.”

“If your portfolio is all software companies or biotech, you are not diversified.

“Have some boring companies – utilities, property companies – make sure that the portfolio is properly diversified.

“That’s a free lunch in the financial markets,” he says.

Don’t dabble

Jasper’s final word of advice is don’t dabble.

“If you are going to do it, take it seriously and learn from it.

“Don’t expect to learn it all in one day.

“If you learn over the next decade, you will become much more confident in that decade.
“But if you dabble, you won’t learn.”


“Read lots of books,” Richard Stubbs, co-founder of Castle Point Funds says.

“Whenever I have felt I have come across an original investment idea I have found it somewhere else written down by a successful investor.

“We are in a strange industry where the experts like to tell you their secrets by writing books.”

“The best investors I have seen generally take a long-term perspective and don’t worry too much about short-term price movements.”

Stubbs recommends books authored by Benjamin Graham, Phillip Fisher, Peter Lynch and Howard Marks.

Most of the investment principles are simple and easy to understand. The hard part is to adhere to them, he says.

“When prices move dramatically they are generally followed by stories explaining why. In most cases those stories are just trying to justify market noise,” Stubbs says.

And read the annual reports of companies. Those reports they will tell you all about what the company does and if you are serious about investing you need to know that.

“Also they hold a great history lesson for the company. If you read the CEO and chairman’s reports it is sometimes a bit like reading a novel with all sorts of twists and turns.”


“The more I do this job, the more emphasis I put on understanding company culture.

“Company culture starts at the top with the CEO and dissipates down to the front line through the hires that the CEO makes and the expectations that are placed on them.

“If a company has a bad culture, bad things will generally happen.

“A good easy test is to see if the CEO knows what the company values are.”


Sam Trethewey, portfolio manager at Milford Asset Management, said Milford’s approach was about achieving significant engagement with companies.

“So that’s getting out on the road, meeting them, understanding them, and understanding the people involved and the strategy.

“As a starting point we spend a lot of time identifying what we don’t understand about a particular company and then we invest that time to get out there and understand it and get a sense as to where things could head to.

“We then develop a thesis for each stock. A list of reasons as to why we why we own it or why we don’t .

“And then we regularly review that thesis and adjust our positions accordingly, depending on how it is playing out.”

Know when to sell

Trethewey said the most difficult part of investing was knowing when to sell.

“Knowing when to get off the bus is difficult and that’s why that thesis – the list of reasons – is really important for any investor to understand,” he said.

Over the past few years, investors have had to tailor their portfolios to take into account very low interest rates, which has meant investors have had to change their ideas about what is an acceptable return.

“Five years ago you might have thought that an 8 to 10 per cent return from a low-risk stock might be in order.

“Now it’s closer to 5 per cent as interest rates have fallen.”

To value a stock

Tretheway says valuing a stock is both an art and a science.

“You can’t get too scientific about it.

“There are external factors such as the amount of money around the world at the moment, looking for a home can be a key driver and you can see asset prices generally inflate quickly on the back of that.”

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