How to diversify your portfolio to protect yourself from market risks? (17/20)

Here are these principles (this list is not intended to be exhaustive):

1) Buying a stock is like shopping: you compare quality and price. You take advantage of sales and don't buy when the price is at its highest (I'm deliberately antagonizing all technical analysis enthusiasts here).

2) A contrarian approach. This is related to the first point. We ignore the group effect, a phenomenon well known to psychologists, and very much in evidence on the stock market. It feeds on our fears and greed. It's easy to say, but not easy to do, at least not for everyone (which explains the market's erratic behavior). If you can do it, then you're way ahead of the game. Buffet and Dreman are very good at this game.

3) We play for the long term. The market is focused on the short term. It reacts very strongly to the latest news, especially when it doesn't match forecasts. Fund managers need to achieve convincing results over a very short timeframe. They therefore tend to rotate their positions a lot. The market is an average in which there are a lot of loser stocks, which languish or disappear, but also a few nuggets that have been around for a very long time. So you need to bet on these exceptional stocks for the long term. It doesn't matter if they lose 30% during a downturn, if the share price continues to gain several tens of percent a year for several decades. The problem is that most people only hold their shares for a few years. Likewise, there's no need to monitor your stocks every day. It's counter-productive and leads to bad decisions based on emotion. By doing a quarterly or even annual check-up, you behave like a real investor or company director. Better still, you don't focus on the price, but on the company's financial results.

4) On se concentre sur un portefeuille de taille "raisonnable" : suffisamment grand pour ne pas tout perdre en cas d’erreur, mais suffisamment petit pour s’affranchir du marché (plus il y a de titres, plus on se rapproche forcément du marché). En liant ce point au précédant, on se comporte comme un véritable investisseur, presque à l’extrême comme un entrepreneur, à la manière de Buffet ou de Bill Gates. Il n’est ni possible ni forcément souhaitable de faire comme eux, mais on peut s’en servir comme source d’inspiration. Quelques gros titres de fonds de portefeuille, de très grande qualité, avec des gains constants durant de nombreuses années, quoi qu’il se passe sur le marché et qu’on garde non pas des années, mais des décennies. Privilégier les entreprises qui ont une « franchise », à savoir un avantage concurrentiel, un quasi monopole, ou une marque très forte. Privilégier les secteurs des biens courants de consommation. Combien de positions au total ? Cela dépend de la propension au risque de chacun, mais quelque chose entre 20 et 50. Au-delà c’est inutile, on ne diminue plus le risque. Pour les investment funds ça se compte en centaines… pas étonnant qu’ils ne fassent pas mieux que le marché. C’est eux le marché !

5) You create your own method, i.e. don't follow tips or recipes made by others, financial gurus, because everyone else is already copying them. You can adopt a "value" strategy, like Graham, but create valuation criteria that suit you, according to your personality, your risk appetite, your investment horizon, your means, etc. The more a strategy suits you, the more it will be profitable for you. The more a strategy suits you, the more likely it is that you'll stick with it, even in the event of a wrong turn. Above all, the more it suits you, the less likely it is that others will do the same. And that's the only way you can beat the market, maybe not today, maybe not tomorrow, but over the long term. The market has not only loser stocks, but also loser investors or traders, who give up along the way. If you stay the course because your strategy suits you, then you've already won. You'll notice that I'm not giving you ready-made formulas here, just pointers to get you thinking, so that you can develop your own method.

6) On recherche des growing dividends. C’est lié au point 3 ci-dessus. Ne vous jetez pas sur la première action qui paie de gros dividendes, C’est souvent un signe de faiblesse (mais parfois c’est juste Mr. Market qui fait la fine bouche…). Evitez aussi les entreprises qui n’en paient pas ou qui en paient à intervalles irréguliers. Privilégiez plutôt les entreprises qui paient un dividende croissant depuis plusieurs décennies. C’est la preuve qu’elles sont bien gérées et que quoi qu’il se passe, elles parviennent toujours à générer de la plus-value.

7) Don't try to beat the market. Paradoxically, it's by focusing on your own strategy and staying the course, without worrying too much about the outcome, that you stand the best chance of beating the market.