Investing within a Stocks and Shares ISA can be a great way to build wealth. But not all ISA investors have success – without a proper strategy it can be easy to lose money when investing.
When I first started out investing within an ISA, I lost money. But then I made a few tweaks to my strategy and started seeing much better results.
A focus on growth
One thing that has made a massive difference to my returns in recent years is shifting my focus away from ‘cheap’ stocks and towards companies generating consistent growth.
More often than not, when I bought a cheap stock, it would just get cheaper and I’d end up losing money.
By focusing less on valuation and more on growth (a key driver of long-term investment returns), I’ve generated some excellent results.
Diageo is a good example. I started buying shares in the alcoholic beverages giant several years ago when they were trading near £20. Today, the stock is near £35. Add in dividends and my overall returns have been solid.
Investing in high-quality companies
Another factor that has helped improve my returns is a focus on quality.
By quality I mean companies with strong competitive advantages that are consistently very profitable (have a high return on capital) and have solid balance sheets. Over the long term, high-quality companies tend to produce good returns for investors.
Software company Sage is one example of a high-quality UK company I’ve invested in. I started buying shares in this business a few years ago and now I’m sitting on a 40% profit (excluding dividends).
Avoiding cyclical stocks
Avoiding highly cyclical stocks has also boosted my performance. Cyclical companies are those whose profits fluctuate depending on the economy. Think banks, housebuilders, and materials companies.
These types of shares can do well when economic conditions are strong. But when the economy experiences a downturn, investors can face large losses.
And getting the timing right in terms of buying and selling can be very difficult.
Taking a global focus
Taking a global approach to investing has been another key factor behind my improved returns.
By doing so, I’ve been able to generate profits from stocks such as Apple, Alphabet, and Nvidia, which are listed in the US. All of these stocks have more than doubled in price since I first started investing in them.
Following the experts
Finally, following the experts has also boosted my returns. By experts, I’m referring to top investors such as Warren Buffett, Terry Smith, and Nick Train. All of these have fantastic long-term investment track records. So to my mind, it can be worth following some of their moves.
Of course, the experts don’t always get it right. Like everyone else, they make mistakes at times.
However, I’ve had success by following them. For example, several years ago, I noticed that Terry Smith’s (Fundsmith) top holding was Microsoft. So I decided to buy some shares (after doing my own research).
I started buying the stock when it was at $140. Today, it’s near $350.
