Part 1 – The Investment Strategy

Part 1 – The Investment Strategy

The investment decision

I will in this blog post series explain my investment strategy and give a step-by-step guide on how I apply my set of rules to the investment decisions that I make. Without a strategy most investors will follow their gut feeling, advice from other people or news in the financial press when investing and will therefore receive below average stock market returns. Every active private investor should therefore, in my opinion, write down their own investment strategy on a piece of paper and define who they are in the financial markets. The strategy that I follow is a blend of dividend growth investing, investing in spinoffs and investing in megatrends. This way will not suite everyone, and should not serve as an investment advice, but hopefully inspire and be a help on the way to increase returns and boost the interest in stocks. At the end of part 1, you’ll find my investment checklist…

Nordic Focus: I have a Nordic focus in my portfolio since the Nordic countries are a very exciting investment universe with solid international companies, which has resulted in high value creation over time. This focus does not exclude investments in companies listed on other stock exchanges since I do not want to constrain myself too much. 

Megatrends: To manage high valuation of assets, one can take advantage of thematic investments that benefit from long-term societal trends. Since it is expected that such investments will not depend so much on the daily ups and downs of the financial markets but try to take advantage of the predictability and sustainability of multi-year trends.

Step 1: Top-down approach

I begin with identifying macro trends and thematic investments (a top-down approach) and I ask myself the following questions:

  • What changes is the world undergoing?
  • What does this mean for different sectors?
  • Which stocks are relevant in the most popular sectors?

Step 2: Technical analysis

I perform a quick technical analysis to find out if it is interesting to spend more time analysing the company and whether there it is an opportunity to buy at the moment. The reason I check the chart before studying the company is because this is less time consuming than a qualitative assessment of the company. If the chart does not look interesting at the moment I add the company to my watchlist.

The key indicators that I add when perfoming a TA is:

  • Moving Averages (10, 50, 100 and 200 days)
  • RSI 14 days
  • MACD
  • Volumes
  • Add trend lines and support and resistance levels

Step 3: The quantitative assessment

A quantitative assessment of the company is performed, and I simultaneously fill in my investment checklist. The checklist is my tool to control myself and my way of controlling that I’m true to my investment strategy. There is no reason to own a mediocre business when you can own a high-quality business that have a proven long-term record of stability, growth, and profitability. If I get a “purchase-signal” from my checklist I will increase my probability that the investment will turn out to be a profitable investment. The treshold for making a decision to invest in a stock is a score of 80.

“Part 2 – The Holding Period” will be published next week. Subsribe below if you want to receive a mail when this is published.

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