Guidelines for Aggressive equity investors

Aggressive equity investors play the equity game activity and vigorously. They spend more time and effort in managing their portfolio than their conservative counterparts. They are inclined to take greater risks, albeit in a calculated manner, to earn superior rates of return. They seem to relish the thrill and adventure of playing the equity game.

In addition to the general guidelines for investment, aggressive equity investors should also bear in mind the following guidelines especially relevant for them.

1. Focus on investments you understand and play your own game.
2. Monitor the environment with keenness.
3. Scout for ‘special’ situations in the secondary market.
4. Pay head to growth shares.
5. Beware of the games operators play.
6. Anticipate earnings ahead of the market.
7. Leverage your portfolio when you are bullish
8. Take swift corrective action.

Focus on Investments you understand and play your own game:

If you to manage your investments you should know more than the market does about the company you are investing in. Hence you will have to decide on what to focus on. Most investors go about this very casually. Yet this decision will be the key to your success. You have to decide whether you will concentrate on growth, value, small companies or multinational companies, or public sector companies, or high grade bonds, or low grade bonds or whatever. Whatever strategy you follow you should follow three rules: be thorough, tough minded, and flexible know a great deal about any company you buy into, and only buy when the company is misunderstood by the market.

Benjamin Graham, perhaps the most revered guru in the investment field, has persuasively argued that an investor should play the game that he knows best. His advice goes as follows:

Let me close with a few words of counsel from 80 year old veteran of many a bull and many a bear market. Do those things as an analyst that you know you can do well, and only those things. If you can really beat the market by charts, by astrology, or by some rare and valuable gift of your own, then that’s the row you should hoe. If you are really good at picking the stocks most likely to succeed in the next twelve months, base your work on the endeavor. If you can foretell the most important development in the economy, or in technology, or in consumer preferences, and gauge its consequences for various equity values, then concentrate on that particular activity. But in each case you must prove to yourself by honest, no bluffing self examination and by continuous testing of performance, that have what it takes to produce worthwhile results.

If you believe that the value approach is inherently sound, workable, and profitable, then devote yourself to that principle. Stick to it and don’t be led astray by Wall Street’s fashions, its illusions, and its constant chase after the fast dollar. Let me emphasize that it does not take a genius or even a superior talent to be successful as value analyst. What it needs is, first, reasonable good intelligence; second, sound principles of operation; third, and most important, firmness of character.

Know your Investment Sweet Spot:

To succeed as an investor, you must first know yourself. Your intellectual capabilities and your emotional capabilities will largely determine your investment success. Your intellectual capabilities include your ability to analyze financial statements, your memory and recall power, your capacity to master and manage knowledge, your flair for developing insights and understanding from amorphous data and information, and so on.

Your emotional capabilities include your ability to maintain composure in a chaotic environment and your capacity to deal rationally with volatility and disruptions that you face everyday.

As Charles Ellis argues, every investor has a zone of competence that defines the kind of investing in which he is really skillful and a zone of comfort that represents the area of investing in which he is calm and comfortable. He says that the sweet spot of the investor is represented by the overlap between the zone of competence and the zone of comfort as shown below:

Zone of comfort  Sweet Spot  Zone of competence