Investing in 2017 has been a crazy contrast.
On one hand we have had a near euphoric rise of growing tech stocks like GetSwift Ltd (ASX: GSW), WiseTech Global Ltd (ASX: WTC) and XERO FPO (ASX: XRO).
While on the other, I found myself calling the demise of large, entrenched dividend payers like Telstra Corporation Ltd (ASX: TLS) and Coca-Cola Amatil Ltd (ASX: CCL).
Somewhere among all this, retailers got smoked, the oil price recovered and the world went crazy for bitcoin.
Remember your investing roots in 2018
When times are good we get bombarded with stories of people getting rich almost overnight. Often it's through property investing, though currently it's Bitcoin millionaires. It makes us feel like we are missing out, but remember to stay true to your investing roots.
If that means owning shares in steady growing businesses like CSL Limited (ASX: CSL), don't start chasing the next big crypto-currency or small-cap or momentum stock. It's a recipe for disaster and the stories of quick millions (if true at all) are the exceptions, not the rule.
Take steps to prepare for whatever 2018 brings
Investing in 2017 will be remembered for low volatility, rock bottom interest rates and high equity valuations. This has been great for assets of all types, and long may it continue, but realistically I don't think it can get much better.
I am taking advantage of the good times to prepare for whatever might come next. Here are some ways I'm doing that:
- Paying down debt to build an iron clad personal balance sheet.
- Selling the dogs in my portfolio. If the business can't thrive in 2017, how will that improve if costs start to rise or economies get unexpectedly worse?
- Preparing a watch list of top quality companies I want to own if prices fall. This is both prudent and gives me something positive to focus on if markets do tank.
The only secret to huge wealth is compounding – and that takes time
Success in life is compounding, a secret which has been true for millennia.
We should compound everything; knowledge, physical fitness, deep personal relationships, practiced skills… it all gets better with incremental gains to a base.
Compounding wealth sits above all else because it is a purely mathematical exercise, not restricted by our human limitations. The process can feel painfully slow, but in the years ahead good businesses will keep growing, keep generating cash, and keep paying out dividends.
To what lies ahead
Whatever may lie ahead in 2018, it's worth spending some time to reflect and prepare. Yes, disruption is accelerating at a phenomenal rate. But I expect the age-old rules of business-like investing and long term compounding to continue and endure.
