Often when we deploy capital in the market we will be expecting either potential upside or dividends within a certain timeframe. While that is common, it does not make a whole lot of sense when you are trying to maximize gains. For example, if a stock is only active before dividends are announced or right before ExD dates, then there is no need to leave your capital there when there are other opportunities for yields. In this week’s post, I will be sharing my thoughts and techniques to maximize the opportunity cost of each tranche of capital. This will help us understand that as we gain more experience in the market, there is no need for a fixed period of commitment when we invest.
Do not leave your funds in a dormant state
Before we even touch on the techniques, we have to first address the main issue. That is, we should never leave our investments alone and hope for the best. Doing your due diligence is not a one-time affair. As investors, we will need to constantly check our positions to know how recent events could affect its near-term trajectory especially if your funds are limited and you are only managing a few tranches of capital. A word of advice is to always ask yourself how confident are you that your capital allocation can yield the expected returns within a defined time frame. If you are sure of your decision then you should hold but after a few years of investing, one will realize that the market is always more scheming than we imagine hence, we should always act before the tide turns. (but that’s for another day and post)
Spotting opportunities and explore your options
Our watchlists should contain all potential stocks that are investible and/or are approaching a reasonable entry price. These options you have will allow you to switch capital around from other counters the moment you spot the end of an uptrend or the start of another round of consolidation. Even though it takes a lot more than just effort to spot these opp[ortunities, starting your search with such a mindset will help you hone your skills over time. Personally, I realize that investors should never leave their assets in their comfort zone for long. The moment we sense that activity is shifting, we will need to do our homework and make our move, otherwise, we will risk missing the next boat that could potentially yield us significant returns.
Diversify funds for different modes of investing
Do not be a 100% trader especially when you are managing a huge amount of capital. Investing should always be the bedrock, in other words, you should only buy into a stock when you are confident that it has significant upside in the long run. As for trading, we are merely taking action to ensure that we are not leaving the fate of our portfolio performance to chance. Yes, we might be wrong when we take action but over time, it will benefit us more than being passive. Gone are the days when we can buy a stock and ride on it forever. Besides anomalous overpriced markets stimulated by newly printed monies, other legitimate investments which present way higher returns, in the long run, will not allow you to hold and earn that easily.
Closing Thoughts
In summary, investing is not a passive activity. Otherwise, there will be no need for fund managers in this world. Markets move and every stock counter has its unique characteristics. As an investor, we should make full use of this swings and take action when necessary. In general, any trend that keeps on going will end with a devastating conclusion so try to stay sane and manage your expectations.
