Investing in shares isn't about timing the market, it's about time in the market.
The longer you hold shares in great companies, the better the opportunity to compound your wealth.
It doesn't matter what the share price does in the short term. If you've got a strong company paying a good dividend, the share price usually catches on.
That's why if you're planning to open your own share portfolio in 2015, look at tomorrow's winners, not today's.
Here are some easy rules for superior stock selection.
1. Focus on companies which make great returns on investment (ROI) and can easily afford to pay their dividends out of this year's earnings.
2. Pick stocks with competitive advantages and scale. That is, businesses that can enforce higher prices without consequence and keep costs low, maximising their profit margins.
3. Managers with integrity and talent top it off. Find out who's running your company.
The companies which tick all these boxes are the ones which really turn it on for shareholders in the long run.
That's why I own shares in Computershare and recently bought warrants in Coca-Cola Amatil Ltd (ASX: CCL). Each have wide economic moats (competitive advantages) and the ability to produce great shareholder returns over the long run.
But a company doesn't have to be a giant like those two above to be a great capital allocator and hold a sound competitive advantage. Ardent Leisure Group (ASX: AAD) and Village Roadshow Ltd (ASX: VRL) are two first class businesses which have achieved 10-year average annual compound returns of 16% and 25%, respectively.
Finally, if you're more of a 'set and forget' type investor then small-cap stock picks should be kept to a minimum. However, I recently picked up some shares in BigAir Group Limited (ASX: BGL) because it is well managed, boasts strong profit margins and has consistently grown its earnings and dividend for many years.
Our #1 stock idea for 2015 – Yours FREE!
By focusing on those three simple rules above and adopting a long-term investment horizon, I believe everyday people can produce truly life changing amounts of money from the share market. I own shares in three of these companies and will likely find room for the others soon. However our top analysts have just identified their favourite stock for 2015, and you should know about it!
