BE A MASTER INVESTOR

Rory Gillen, Founding Director, Merrion Capital

With more people starting to invest in the Stock Market, there is an urgent need for private investors to master the correct investment strategy. Romil Timbadia speaks to investment expert, Rory Gillen.

The growing interest in equity investment by private investors, which is partly due to a large number of people amassing new wealth in this opportunistic country, is very encouraging.

Still, well-earned money has to be invested carefully. It is better to learn how to invest right at the start and stick to basic investment principles that have been watertight over decades, although a calculated risk should be taken every now and then.

So, how do you do it? How do you carefully invest, select the right stocks, judge the percentage of diversification and, essentially, be a sound investor? Rory Gillen, Founding Director of Merrion Capital Stockbrokers and course director for Invest Like The Best (ILTB), a stock market training company, offers some words of wisdom.

What are the basic essentials one should look for in a company while investing?

That is not as simple a question as you might think. You can go one of two ways when deciding how to invest in stocks; you can choose the way of prediction or the way of protection. If one chooses to go the route of 'prediction' then a reasonable assessment of both the qualitative factors and quantitative factors is required in order to make an informed assessment of the future outlook for a stock.

In my view, the way of 'prediction' is complex and hard work for the majority of private investors. In addition, private investors are up against the market professionals (fund managers and equity analysts) in this area and the likelihood of private investors assessing individual shares any better than them is likely to be low.

On the other hand, a private investor can choose to invest by way of 'protection,' which focusses on the value on offer in individual shares at any point in time. The advantage of going this route is that it allows an investor to ignore the majority of qualitative issues and this greatly simplifies the decision-making process. As a result, this approach can lead to far better and more consistent investment decisions.

What is the main difference between speculation and investment?

Speculation is buying and selling shares too frequently, the worst offence being day trading, options trading, the use of charting and technical analysis to provide buy and sell decisions, contracts-for-difference (CFDs), spread betting etc.

Essentially, once an investor tries to judge short-term price movements, which are driven by demand and supply issues, he/she has entered the speculative arena. Only a small minority can hope to win in this arena. In my view, 95% of those who try to speculate are doomed to lose money. It is akin to playing poker; some will win, some will lose but no new money is created.

Investing, on the other hand, is all about generating the returns that are available from the stock market over time. And it can be as simple as buying property except with a few different rules. One has only to pay attention to some simple company fundamentals as described in the answer to your first question. It is my experience that many individuals in the stock market think they are investing when in fact they are speculating.

Should an investor listen to his/her broker? How would this prove to be helpful, or indeed, the opposite?

It is important to understand that stock broking as a business, whether in the US, UK, Ireland or elsewhere, flourishes on turnover (trading). Speculation fuels activity, which in turn fills the commission coffers. It stands to reason then that the advice favoured by the stock broking fraternity is of a short-term nature, which can drive turnover.

Understandably, the investor and the stockbroker have conflicting goals. The best advice I can offer is for people to get a bit of training on how to approach stock market investing," concludes Gillen.