How to make your hobby your job and vice versa
Right. Let's move on from "How not to cock it up" to "How to make a half-decent job of it".
Step one of running your own investments is "Focus".
Your first issue is going to be trying to work out where to start and what you should take notice of. What do you do first? Read The Economist and learn about quantitative easing and the Federal Reserve? Read Benjamin Graham's The Intelligent Investor written in 1949 and try to piece together how to value a company?
Or maybe you get a broker and listen to him or her? Or subscribe to a newsletter or five. Or pay a few thousand for some software package that promises to retire you to the lifestyle that you deserve. Or maybe you go to a two-hour free seminar on how to invest.
There is so much information and noise in the sharemarket, just where do you start?
Let me make it simple. There is only one thing that matters to you and it's what you're invested in and what the price is.
The way to track that is simple. Go to your computer and open up a blank Excel spreadsheet. Save it as "MY SMSF".
On a worksheet called "Equities" you will write five column headings: Stock code, company name, number of shares held, current share price and value of current holding. When you buy a stock you are going to fill in these columns.
At the bottom of the "value of current holding" column you are going to add up how much all your investments are worth. That number, which will go up and down once a second if you link to live pricing, once a day if you use closing prices, once a week if you want to avoid stress or once a month if you want a life, is the only thing that matters.
From now on "MY SMSF" is your focus. It is the only thing that will tell you what your current investments are worth. It is the only thing that matters. That number at the bottom of your spreadsheet.
Now you're focused. The game is the money, your money, and you want to discard anything that doesn't impact on that bottom number. You can read The Economist if you like, read the first 10 pages of The Intelligent Investor, understand portfolio theory or have an opinion on tapering, but unless it affects what stocks you hold and when, it's a waste of your time.
Your success or failure comes down to picking which stocks, and when, and that's it. The rest is bollocks.
So put a border around the square that says "value of holdings". At the moment it should be zero. You'll need to add a row for cash and any other investments and sum them all in a final cell with an even bigger border and label it "Current value of my SMSF".
Take note of what it's worth now because you're going to use that as your target for the end of June 2014.
You have just set your first financial goal and created a spreadsheet to measure it. You have started to plan and there is something satisfying about planning. You have also ring-fenced your investment activity.
When the spreadsheet is open, you are on the job. When it's closed, you are not. This simple discipline will leave the rest of your life clear and free of stress in the knowledge that all the hard parts are on a PC somewhere.
We haven't made a dollar but by the time you save that spreadsheet you have moved from inaction to financial contentment, you have the glimmerings of hope, the anticipation of a new hobby, some certainty and a lot less stress. Above all, you have a target and a focus.
You'll be able to approach the other things in your life without financial baggage being ever on your head. It's on the spreadsheet. Don't think about it unless it's open.
Frequently Asked Questions about this Article…
The first step is focus: set realistic expectations, know your limitations and create a simple tracking system. The article recommends opening an Excel workbook called "MY SMSF" and using that as the single place to monitor your investments and progress.
Create a worksheet called "Equities" and add five columns: stock code, company name, number of shares held, current share price and value of current holding. Fill these in whenever you buy a stock so you can see each holding's value at a glance.
Add a row for cash and any other investments, then sum the 'value of current holding' column plus cash and other assets into a final cell labeled "Current value of my SMSF." Put a clear border around that cell — it becomes your single number to monitor.
Choose a cadence that suits you: you can link to live pricing (updates continuously), use closing prices daily, update weekly to avoid stress, or update monthly if you prefer less maintenance. The article suggests picking a frequency that balances information with peace of mind.
Because your success or failure ultimately comes down to which stocks you hold and when you buy or sell them. Market commentary, economics books or newsletters are useful only if they change what you hold or when — otherwise they can be distracting noise.
Record your current SMSF value in the spreadsheet and pick a target date (the article gives the example of the end of a financial year). Use that starting number as your target baseline and measure progress against it at your chosen update frequency.
Ring-fence your investment activity: use the spreadsheet as your working area. When it's open you're on the job; when it's closed you're not. Focus only on items that affect your holdings and the bottom-line cell, and ignore the rest of the market noise.
Not necessarily. The article advises that reading The Economist, investment books or subscribing to newsletters is only worthwhile if it changes your decisions about what stocks to hold or when to act. Otherwise it's likely a waste of time and can distract from your core task of managing holdings and price.
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