Sunday, 27 March 2016

What it takes to be a self-Directed Investor

Ultimately, all self directed investors need to be comfortable with the stocks they hold.  They should know what business the stocks they hold do and how they make money.  They should also have a plan for their portfolio which all contributes to a comfort level.

Have a Plan

An example would be my own portfolio.  I was very interested in dividends and found out about DRIPs (Dividend re-investment plan).  Once I got my first DRIP payment, I was hooked.  It seemed like a natural fit for me.  I truly was in it for the long run, I could hold a blue chip stock and collect the DRIP stocks every time a dividend was paid.  Then I kept reading that the dividend amount can be increased on a regular basis.  It just seemed like it was the perfect fit for me.  I did not pay Mutual Fund MERs, I paid once to buy the stock and then can enjoy the DRIPs for years.  The stock I buy could go up and down but then so could Mutual Funds, they go up and down also.

Currently, I have 37 dividend paying stocks all paying between $10 all the way up to $120 either monthly or quarterly.  Not a month goes by where there are not multiple dividend DRIPs in my account.  Annually, I already know that I will be getting 270 DRIP stocks in 2016.  This fits well with my strategy of putting my investment monies in for the long term.

Keep Learning

There are many ways to learn about financial investments.  Reading books, articles, talking with people, and taking courses are all good ways to learn.    Financial blogs are gaining popularity as a new generation of financial gurus and bloggers are revealing all the so called financial secrets to all the internet to see.  There was always a mystery of what investing in the stock market entailed.  Financial Blogs are in my opinion an untapped source of information.  Reading the right blog over time can get you as much information as you can get on a topic which otherwise would be something you would pay for from a financial advisor.  DIY investing is something everyone should look at and blogs out there have given me the confidence to explore and apply what I want my life savings to do.

Critical thinking

I figured out that there is a big difference between trading and investing.  Trading involves buying low and selling high.  This type of thinking is as old as it gets.  Investing usually involves long term holdings.  Just because you buy a stock and it goes down the next day, it does not mean you were wrong.  Also if it goes up the next day, it does not mean you were right either.  I have repeated this before and will repeat it again.  No one knows where the price of a stock will go tomorrow, next week, next month, or next year.

The basic concept of dividends being raised once a year for example, fits well with my thinking.  It's something I want in my portfolio.  It drives my research in stocks, it keeps me disciplined.  It keeps me thinking that everything will be fine when markets take a dive.

Final thoughts

A self directed investor should be willing to learn and apply their knowledge.  They should have a plan.  They should always be learning or looking to learn something new.  They should review their stock holdings periodically and review the direction of the stock to make sure it falls in line with their direction of where they want to take their portfolio.

Are you a self directed investor.  Please share your thoughts.

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