3 Key Takeaways from a World-Class Investor

More than 20 thousand individuals piled into The Gabba on Saturday evening.

For those of you who are not sports fans, The Gabba is a major sports stadium located in Brisbane.

Everyone who walked through the doors was there to watch the Brisbane Lions take on the Gold Coast Suns in the AFL.

Brisbane walked away the winners in what made for a very fiery display, ending the Suns’ three-game winning streak.

But the so-called ‘Q-Clash’ wasn’t the only exciting event taking place at the Gabba during the week…

On Wednesday evening, the stadium was host to no less than 500 individuals – some young and some old – all of whom were eager to hear from a world-class investor.

Of course, this wasn’t just any old investor…

This was Tom Gardner, the CEO and co-founder of The Motley Fool, who has masterfully built a decades-long track record of market-beating returns.

Indeed, you’re likely familiar with some of his greater stock picks, including the likes of Starbucks and Tesla. He also recommended  shares back in 2007, which have risen more than 3,800% in the time since…

Needless to say, he’s guided investors to some enormous returns over the years.

With the additional benefit of getting to meet the Australian share advisors in person, and hearing them answer some particularly tough questions live on stage, it’s easy to see why so many investors piled through the doors of The Gabba for the event.

A Life-Long Lesson for Every Investor

Still, those who attended were fortunate to hear from Tom Gardner himself.

Although his expertise lies mostly in the US markets, his wisdom and knowledge is equally applicable to investing in Australian shares.

One of the key takeaways from his speech related to the fact that investing is a life-long endeavour

Markets will rise, and they will fall. Some investors will get lost along the way, finding that the turbulence is too much for them to handle, but the best investors will remain calm…

They will ignore the short-term perils of the market and focus instead on the bigger picture.

What’s more, those investors will commit to limiting their trading activity, and focusing on the quality of the businesses themselves.

Which brings me to point number two…

The S&P/ASX 200 (ASX: XJO) has been on a rollercoaster ride this year. It’s sitting more than 14% below its April 2015 peak.

We were even down more than 20% earlier in the year, putting us in an official bear market at that time.

No doubt some investors will have been freaked out by these wild mood swings…

Some of the more bearish economists were even calling for another Global Financial Crisis-like event, while others were happy to spread the uncertainty regarding China and oil prices.

But is Tom Gardner freaked out?

Not at all…

In fact, Tom’s advice for every investor in the room was to expect an overall market decline of more than 20% maybe twice a decade…

That may seem daunting, but for long-term investors like Tom, such events can create incredible investment opportunities!

After all, while others are selling their shares in a state of panic, the more opportunistic investors are wading their way into the market…

They’re picking up shares in high-quality businesses at what can sometimes be considerable discounts to their true value.

Of course, there is always the risk of being wrong.

To borrow a quote from legendary investor Peter Lynch…

“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten” (my emphasis).

And that is why diversification is so important to your prospects of building a sound, market-beating portfolio…

Notably, the number of shares you should own will vary depending on who you ask…

Tom, for instance, believes investors should hold “at least” 20 to 40+ shares…

Others think 15 is a more appropriate number while some think owning 10 high-quality businesses is the ideal way to invest.

In my mind, there is no right or wrong answer regarding how many shares you own…

What is more important is that you diversify properly across industries and geographies and ensure you are not overly exposed to any specific risks.

That’s why I think many individuals are playing with fire by over-exposing their portfolios to the Big 4 banks…

Australia’s major banks have done well by investors in recent years, but their performance over the last 12 months has been less than inspiring.

In fact, had you owned all four of the banks with an equal weighting in your portfolio, you’d be sitting on an average loss of roughly 26.6% since this time last year.

Australia and New Zealand Banking Group (ASX: ANZ) has fared the worst, down more than 34%, while National Australia Bank Ltd. (ASX: NAB) is down 31% as well.

TS 19 April 2016

Source: Google Finance

All four are either in, or on the verge of, a bear market.

By comparison, the S&P/ASX 200 is down ‘just’ 12.6%…

The fact is, the banks are facing a number of strong headwinds right now.

Although they have each fallen in price, they could still fall even further. And investors who are heavily exposed, and lacking the necessary diversification, are among the most vulnerable.

Beyond the Banks

Of course, there is a reason the banks have found so much love among investors…

Not only have they generated huge profits, the banks have also paid much of that earnings out in the form of fully franked dividends

If there’s one thing that Australians love, it is to beat the taxman, and what better way to do that than to receive those juicy franking credits.

But the truth is, the ASX is home to many great dividend-paying businesses outside of the traditional blue chip stocks…

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool employee Ryan Newman owns shares of Netflix.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.