Everyone's trying to make money in the sharemarket but there are more important things in life.
As one sagacious financial planner once pointed out to me, superannuation is a low priority compared with the financial implications of marriage, divorce and children.
So as a veteran of three marriages, one divorce and four children, let me advance a set of investment principles that, applied properly before a marital investment, may just help you with that. The basic principles are these:
Be selective. It may seem obvious but after my first experience, don't invest at random.
Take your time. Don't rush. Just because the idea of becoming a long-term investor crosses your mind, it doesn't mean you have to turn your speculative trade into a core holding.
Men are the worst investors. Why then have we been made responsible for initiating investment proposals? It is beyond logic that this decision has been left to those least equipped to make it. Make sure you canvas the opinions of as many investment professionals in the opposite sector before surprising your target with a takeover offer.
Beware the marketing. The more "tits and feathers", the more research you will require. As the tech boom taught us, it is the momentarily handsome and glamorous investments that make the worst long-term investments. Look for a lifeboat not a speedboat.
Be decisive. If you're lucky, a good investment will give you a window of opportunity but you can't take it for granted. Three years of analysis is a lot, five years is too much and beyond that, it is not unreasonable for them to declare you unsuited to long-term investment and, from then on, other potential investors are liable to cut your lunch without blame. You can do too much research.
Accept an element of risk. No matter how much research you do, the truth is that at some point, you just have to shut your eyes and take the plunge or you will miss your opportunity. You can never have certainty.
Discuss the dividend policy. While it is generally accepted that dividends are part of the investment expectation, some investors think dividends are an expensive waste of company resources. Two dividends a year are normal in the financial world but, otherwise, one dividend every couple of years is quite enough and after the final dividend has been decided upon, "special" dividends are not always popular. You can have too many dividends.
Take a long-term view. Anyone who pursues the short term inevitably fails to achieve in the long term. Some investment products are younger, faster and better looking but in my experience, you'll be happier with something smarter and reliable, even if they are more expensive.
Expect nothing. And the smallest of returns will make you happy.
You cannot set and forget. Investments require constant attention, even/especially when they mature.
Attend meetings. It is your duty to listen to your investments, no matter how dull.
Traders. Do everyone a favour, don't pretend to be an investor.
Limitations. There are some, one of which is that you cannot continue to bat for both sides.
Disclosure. Full and frank in good times and in bad. Anything less will compound over time and become catastrophic.
Support. At some point on the road, you may find your investments want to do something different, unexpected - courageous even something you didn't expect. It is a long road. You are there to provide patient long-term capital. Provide it.
And if it all goes wrong:
Don't lose perspective. It's only an investment.
Stop losses. We all set out with the best of intentions but when a mistake has been made, the early loss is the smallest loss. Take it if you have to - for both your benefits.
Assets. Although selling out at a loss can look like the end of life as you know it, you do still come away with tremendous assets. Your freedom to invest again, your experience at making losses, half your capital and the dividends. It is not the end of the world, it is the beginning of a better future for you both. You are not alone and thousands have gone before you.
And finally, learn from your mistakes. You should see my second long-term investment. Took some liberties with the dividend policy but I'm more than happy with that.
Marcus Padley is a stockbroker with Patersons Securities and the author of sharemarket newsletter Marcus Today. His views do not necessarily reflect those of Patersons.
Frequently Asked Questions about this Article…
What are the main long-term investing principles Marcus Padley recommends for everyday investors?
Marcus Padley recommends being selective, taking your time, accepting an element of risk, being decisive (don’t over-research), discussing dividend policy, taking a long-term view, expecting modest returns, and staying engaged with your investments rather than setting-and-forgetting them.
How can everyday investors be more selective when picking shares?
Padley advises against investing at random: research prospective holdings, avoid being swayed by flashy marketing, look for durable businesses (a ‘lifeboat’ not a ‘speedboat’), canvas multiple professional views and don’t turn a speculative trade into a core holding without proper due diligence.
How should I treat marketing hype and glamorous stocks when investing in the sharemarket?
Treat marketing hype with caution: the more glamorous something looks, the more research it usually needs. History shows momentarily attractive sectors can be poor long-term investments, so favour reliable, well-understood businesses over trendy stories.
What guidance does the article give on dividend policy for investors?
The article says discuss dividend policy with the company or management. While dividends are often expected, views differ: two dividends a year is common, but one every couple of years can be acceptable, and frequent or special dividends aren’t always beneficial. Don’t assume more dividends are always better.
Is it OK to ‘set and forget’ my long-term investments?
No. The article stresses you cannot set-and-forget investments. They need regular attention, you should attend meetings and listen to management, and be ready to support your holdings with patient long-term capital when they take unexpected paths.
When should I cut losses or use stop-loss strategies?
Padley suggests accepting early losses when a mistake is clear: the earlier you cut a losing position the smaller the loss. Using stop-losses or a disciplined exit plan protects capital and lets you preserve the freedom to invest again.
How much risk is appropriate for a long-term investor?
You must accept an element of risk — no amount of research gives certainty. The article encourages taking informed, timely decisions when opportunities arise and being prepared to provide patient capital for the long term, while managing downside with sensible limits.
What should I do if an investment goes badly — how can I recover and learn?
Don’t lose perspective — it’s only an investment. Selling at a loss still leaves valuable assets: experience, remaining capital and potential dividends. Learn from mistakes, apply those lessons to future choices, and remember thousands of investors have recovered before you.
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