Investing By Plan - not Patchwork

The decision that self-help will be your modus operandi means that several basic (and sometimes tedious) techniques must be followed. For instance, there is a procedure that sounds deathly dull and elementary: portfolio review. But it's a must, and it must be done periodically if you're to end up with anything close to maximum performance.

Look at your list of securities. If you're like most investors, you will find that you need updating more than you had realized. So get down to grubby fundamentals - and start by tracing your own investor profile. Do two things: First, analyze what you hold in the market in relation to your middle-range and long-range goals. If this means resetting sights on these goals, then you have some serious self-searching to do. Second, get a clear reading on any propensity you have for pushing too hard for quick, unrealistic short-term profits or listening too much to tips instead of solid research. Consider three typical portfolio cases:

The conservative-minded businessman: This middle-aged gent has been in the stock market for years. Through thick and thin he sticks with a list of blue-chip stocks that were movers perhaps 10 or 15 or 20 years ago. They're not just solid - they are stiff. Today they produce very little in the way of annual growth, though the income from them is liveable. They are safe - and you can't say much more. It's just possible, too, that they may not continue to be safe in years to come.

What is frequently needed here are some issues that in the normal range of expectation will produce annual growth of, say, 10 or 15%. Such issues must be bought with middle-range and long-range objectives in mind - even if the short-range result seems uncertain. This may mean a painful and major shift in investments for this stockholder. Or it may mean a partial updating of his portfolio. At the very least, it means a rethinking of overly conservative investment attitudes.

The would-be speculator: This family man isn't really a true speculator. He lacks the nerve and the horse-race psychology - but he likes to play at the game nonetheless and is inclined to overload his portfolio with too many £10 flyers. The flyers - mostly over-the-counter stocks - should take up, say, 5% or 10% of his holdings, not 30% or 40% or more. He may need a shift in investments, too - in the opposite direction. In any case, he needs some sensible self-examination and more and better information. The typical high-flying, speculative stock, for instance, has about a 1% chance of continuing a high growth rate over a 10-year span, and less than a 25% chance of still being in business at all. The would-be speculator's answer, of course, is that he has no notion of holding his cheap buys for even one year, much less 10 years. The big trouble is that he keeps missing the runway with his flyers. The flyer that's great for two months, he holds for three; the one that goes like blazes for six months, he holds for a year. He needs to know what flying in the market is all about - or else settle down to a moderately conservative portfolio plan.

The mutual fund candidate: Sometimes a man will be playing it very safe with such investments as, say, 2007-92 4 1/4% treasury bonds maybe inherited from his dear departed rich uncle. He stays with the bonds largely out of fear of the stockmarket. This gent isn't a. conservative investor. He's just not an investor at all. Since he obviously couldn't handle a conventional account himself - even with the aid of a broker or other adviser might be pegged as a mutual fund candidate. He requires some kind of specific plan of action that will take him out of the bonds - or at least part way out. He shouldn't be scared off by weak stock market and mutual fund performance, or by the fact that most funds charge an 8% load. This gent needs equity.

There are other portfolio types as well. The question is: Where do you fit in? What's your profile as an investor? Whether you go it alone, acting as your own investment manager - or work closely with an adviser - you need this answer. Says an old pro on Wall Street: "Once a man sees clearly his own `profile,' he's in a position to formulate a plan based on his own true objectives - which is what most investors really need."

Reading up: The hardest part of self-help is getting started. One good way is to dig into three or four specialized websites on investments.

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The Hand-holders: Reaching Down To Small Potatoes

The investment advisory business is edging ajar a few more doors to squeeze in the man who has good prospects, a confident smile, faith in common stocks - and maybe £10,000 or so to place in the hands of a professional. Banks, along with independent advisory services, have started a modest new trend that reaches from Englsih to San Francisco. It will gather steam.

The trend should prove of interest to anybody with, say, £5,000 to £50,000, who does not want to rely on a broker for advice, and whose penchant is to remain aloof from the giant mutual funds. "Today a lot of activity is being aimed at helping the small investor who wants equity with safety," says John Orr,... see: The Hand-holders: Reaching Down To Small Potatoes