Whether you are a professional or part time investor, the key take away we have learned over the years is that you always need a plan. This plan is what we like to call our investment strategy and our investment process is the discipline we use to successfully achieve our strategy. One of the great benefits of having a focused and disciplined process in place as a portfolio manager, is that you are always somewhere on the investing learning curve. This means you are constantly learning from your mistakes and working against your emotions to ensure that you are benefiting from the market’s behavioural biases, rather than following the herd and falling into the same traps. Your mistakes and successes should continuously be incorporated into your process.

Without a plan or a documented process, it is hard to maintain focus on what you are trying to achieve. It is arguably more challenging for individual investors to find the necessary spare time and energy required to consistently maintain this discipline but it is vitally important to your success as an investor.

​As a professional investor we believe you always need to consider a worst case scenario in order to have the appropriate risk controls in place:

​We have met many great individual investors who are no doubt well versed in risk control, but in our experience controlling risks tends to be a lower priority for the vast majority of individual investors as it is arguably the least “fun” part of investing. As an investor you should work on understanding your risk environment and whether your comfortable with this in the context of the returns you may be able to generate. For us, the portfolio management team, our key focus is avoiding capital loss as this is what we define as our key risk. What is your key risk?

In our experience, getting to know and understand management makes a significant contribution to understanding the fundamentals of a business. This is not a case of receiving non-public information, it is a case of understanding the thinking behind management’s strategy and vision for a business.

As portfolio managers we have the resources (and time) to access management for one-on-one meetings, and to attend management roadshows and presentations. These opportunities may not  be generally available to individual investors however this may be changing as technology improves information and digital access is becoming increasingly available. At the very least you should have an understanding of who the management team is, their history on delivering on their stated objectives and what their forward looking plan for the business is.

The feedback we generally receive from investors is that they find investing stressful at times. In small cap investing this could be for a number of reasons:

• The universe is enormous with well over 2,000 ASX listed smaller companies to pick from;
• Many smaller companies are concept stocks and don’t have revenues or earnings which makes valuing these businesses challenging;
• It takes a lot of time to truly remain on top of how a business is evolving over time.

As discussed above, by having a focused strategy and process for investing as well as understanding the risks you are willing to take on, you are able to reduce your stress levels. We have learnt over the years that by accepting you will make mistakes and having a process in place to minimise the negative results of those mistakes you are able to invest with a clear and focused mind. Your other option is to find a professional investment manager to carry these stresses for you.

We are all aware that markets can remain irrational for longer then we would normally expect. However sometimes we all need to exit our investments due to unforeseen events. When this happens it can be challenging to know when to sell a holding given stock prices tend to move around. By having a clear understanding of the liquidity profile of your investment and having a plan to deal with unforeseen circumstances you will be able to improve your investing results.