Wednesday, 15 August 2012

The Complete Investment System

A complete investment system has detailed rules covering these 12 elements:

  1. What to buy
  2. When to buy it
  3. What price to pay
  4. How to buy it
  5. How much to buy as a percentage of your portfolio
  6. Monitoring the progress of your investments
  7. When to sell
  8. Portfolio structure and the use of leverage
  9. Search strategy
  10. Protection against systemic shocks such as market crashes
  11. Handling mistakes
  12. What to do when the system doesn't work

The first test of your system is obviously whether or not it makes you money.  If your system is profitable, you'll be getting a return on your capital.

Buffett and Soros measure their performance against three benchmarks:

  1. Have they preserved their capital?
  2. Did they make a profit for the year?
  3. Did they outperform the stock market as a whole?
The benchmarks you choose will depend on your financial goals.  When you have established your benchmark, you can then measure whether your system is working or not.

No comments: