My take on investing

First a little disclaimer - I am not a financial expert and you should not take this post as investment advice.

As written in my previous blog post, I consider procurement spend reduction being my defense (which makes you win championships aka wealth) and investing being my offense (which makes you win games aka providing some extra income). I am personally interested in investing due to my background in economics and my professional role, but I also urge for example my siblings (not very much interested in the topic, being doctors) to consider a sustainable investment strategy.

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My personal investment system

I developed the system over the years and it works for me. It rests on a few pillars, most of it is common financial wisdom - so nothing revolutionary. But with every strategy, it's the implementation and the discipline that matters.

Let's have a look at the pillars of my investment strategy:

a) Paying you first

A crucial part of any investment strategy as it provides you the capital for investments. For me it translates into a standing order from my personal account to my investment account at the end of every month. Whenever I receive my salary, a certain amount is automatically transferred - out of sight out of mind! That way I am not tempted to spend this money and it piles up as my saving rate without thinking about it. It also helps to keep a spending discipline - whenever I check my personal account, I think, wow, that will be tight this month! It's like putting debt on a company in a PE case, it disciplines! It not only disciplines me, it also made me more conscious on what I want to spend my money, in particular at the beginning: good food yes, electronics/gadgets no!

b) De-averaging

When I was younger I thought that I have to time the stock market - it's low now, high a month later etc. Yeaah - just stress, prone to short-term activism (aka costs) and my father made me remember that I am in there for a long-term play - which especially holds true for my wife being a few years younger than me! So now, I invest on a regular basis - every quarter I invest the savings I have piled up - a strategy providing me with a de-averaging effect over time. I don't need to think it's high/low now - I just adhere to the strategy (and it actually works, I am invested in a stock and it was up for some more buying according to the schedule but my initial thought was, ouuuh, it's already high! Nevertheless, I adhered to my strategy and bought some more stocks...it surged close to 10% the 30 days after. I would have missed out on it without my strategy).

c) Investment strategy

So, where to invest? It's the heart of any investment strategy. I would say it's a personal question you have to answer. Below my take on a few of the key questions.

ETFs vs. stock picking

Passive investments (ETFs) are on the rise, no doubts! And if you are not that familiar with business, ETFs provide a good entry into the world of investment giving their diversification and low costs. However...I do mostly stock picking as I am thrilled by analyzing companies and markets and as it's part of my job! Individual stocks make up about 2/3 of my portfolio. I use ETFs to cover certain sectors or regions I want to have exposure but no knowledge etc. For example, I think biotech is an area of growth and I want to have investment exposure, but owning a single biotech stock I deem too high of a risk as I am not a medical expert and can't judge whether this drug will work or not. So I cover it with a funds ensuring a broad diversification. To my siblings, I tell them to invest into ETFs - mostly with a regional or sector angle.

Value vs. momentum

Buffet is a value investor, Graham the godfather of value investing - both are icons of the investment community. Nevertheless, I mostly select my stocks with reference to momentum. If I like a sector, found a company which I deemed solid in my analysis, I always check for its momentum in the final stage. A momentum strategy means that you invest into companies who had a good run in the past as you think it will translate into the future as well. If there is no momentum with the stock, I don't invest. The stock does not need to be a highflyer (I normally cut them out in my analysis as their price is often influenced by some short term trend / fashion) but the stock is required to have performed in a solid way in the last 18-24 months.

Dividend yield vs. growth

A high growth stock with a high dividend yield - that would be the holy grail for investing. But normally you have to make the trade-off and select either or for an investment. My portfolio is much more geared toward growth than dividends - about 70-75% growth stocks. Nevertheless, on purpose I also have built some positions with stocks with a high dividend yield. The goal is that the dividends pay for a wellness weekend with my wife - a tangible benefit for her - that's how I keep her engaged and committed to our strategy and the abstract world of investing :-)!

d) Other strategies

As an enabler for a strategy like that you have to use a broker or bank with low trading fees. Trading costs are an important determinant for the performance. I use Swissquote, other banks I considered were SaxoBank or InteractiveBroker.

Conclusion

I acknowledge that not every person is interested in investing, e.g. my siblings. Nevertheless, I told them to think about it and give it a try (with a strategy/plan) as there is no alternative (the famous TINA argument) given the zero interest you get in your bank account.