Having started some forty-two years ago as little more than a speculator acting on no more than a hunch and generally achieving no more than poor returns, I became more serious and successful as an investor. This evolution largely came about after studying the work of Benjamin Graham, amongst others, and basically "Getting real". To summarise Graham, an investment is something undertaken after due care and diligence with the expectation of getting back the original outlay and making a modest profit, everything else is speculation.
I do not think that the stock market offers the vast majority of investors a route to fast and easy money. However, taking a long-term perspective and factoring in compounded growth rates, the results can be spectacular. Again, paraphrasing Warren Buffett, Graham's most famous student, the stockmarket appears to be a mechanism for transferring wealth from the impatient to the patient.
As for my general approach, I keep things as simple as possible. I go long. I am not interested in complex financial instruments. Especially those involving a counterparty risk. I do not go short where the downside can be huge, particularly with small-cap stocks. I believe that diversification is the key to financial security so I aim to maintain around twenty stocks. I do not pretend to be an expert in any of the areas I invest in but I do think that I have a sufficient grasp of the business model and very broadly the industry in which the company operates. For example, I do not invest in Biotech because I feel that I do not have a sufficient understanding of the sector. That said, although I have no direct mining experience I will invest in miners because I think that I have a sufficiently broad understanding of the area. I have no interest in providing venture capital for risky projects. I believe that this requires a great deal of research and a close personal relationship with the senior managers. I like to see demonstrable success.
One thing that I have come to believe, is that successful investing is as much about yourself and your psychological makeup as it is about the market. Essentially, I am a value investor and I take a long term perspective. At the same time, there is a need to admit mistakes and to simply move on. I have noticed that most of the websites, bulletin boards, etc, seem focused on the short-term. This is not an approach that I take. Even incredibly successful companies can experience oscillations in their share prices in the short term. Sure, if a stock I hold drops sharply I will investigate the cause. But I am really looking at whether there has been a fundamental change such as a deterioration in the markets in which they operate, or whether the company's strategy is failing. It may simply mean that a major shareholder is going through a financial trauma and needs the money. The price of the stock is essentially a function of supply and demand. A fall in the price may indicate an underlying problem with the company or else it may indicate that at that point in time sellers outweigh buyers.
Although I may be a value investor, I am also aware of using a value investing framework in a world where the only constant appears to be change. I look carefully at the growth prospects of a company. After all, there may be no reversion to the mean. The business model may change so much that the sector may not exist in its current form. Just because a retailer is in a slump today does not mean that it will be booming in two years time. The market for horse-drawn carriages came to a close. So why should any business be immune to change?
Essentially, what I am trying to do is to buy stakes in good businesses at a reasonable price and staying with those investments for the long haul. I am buying a piece of a business rather than a piece of paper.