Beyond a ‘gut feeling’

Having a plan – and sticking to it – will improve your chances of building a profitable portfolio

When I first started investing in shares, the idea of planning didn’t even enter my mind. A good friend of mine “played the market”, so I asked him for the contact details of his broker. I contacted the broker and started buying and selling shares based on the broker’s recommendation and my “gut feeling”, peppered with a few tips here and there.

Many years later, and after making many mistakes, I’ve come to realise that this wasn’t a good approach. Share investing should be planned and your planning should be done before – not after – you set up a portfolio.

Not only do you need a plan but, even more importantly, you also need to follow your plan. On most occasions when one of my investments has resulted in a loss, it’s been because I haven’t followed my plan.

We’re all human and our emotions can override logic or rational considerations. It’s most important not to divert from your plan on a whim or because of a mood swing. In fact, the less emotional and the more rational you are, the greater your likelihood of being a profitable share investor.

I recommend that you write down your plan and keep it in a prominent place near your computer or on your desk and that you refer to it before contemplating a trade. While the plan should be written, it shouldn’t be set in concrete but should be