3 strategies followed by millionaire investors

Here’s how you could boost your portfolio returns by following successful investors.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While there are a number of strategies that have been successfully employed by investors in a range of indices such as the S&P 500 and the FTSE 100, here are three that could be easy for any investor to adopt. Given that they have worked in the past for highly-successful investors, they have the potential to boost your portfolio returns in the long run.

Understand your investments

Peter Lynch delivered a 29% annualised return from 1977 to 1990, with his Fidelity Magellan fund easily outperforming the S&P 500. One of the key aspects of Lynch’s investing style is to always understand the companies within your portfolio. For example, even if a stock seems to be cheap and has a strong balance sheet, understanding how it generates a profit remains key from an investment perspective.

This may sound like simple advice, but it could help an investor to avoid making major errors when buying and selling shares. Ultimately, there are always risks when it comes to investing, but minimising them through having a thorough understanding of the stocks in your portfolio could improve the overall risk/reward opportunity on offer.

Smaller company investing

While investing in major indices such as the S&P 500 or FTSE 100 can offer favourable risk/reward opportunities, smaller companies can deliver higher returns. That’s why Jim Slater was able to generate impressive returns during his investment career, with his focus on earnings growth and valuation complementing a preference for smaller companies.

Clearly, smaller stocks can be riskier than their larger counterparts. They often have balance sheets that are less stable, while the loss of a key contract or customer can lead to greater financial pain in the short run. And with them generally being focused on a smaller geographical area, they may lack the diversity of their larger peers.

At the same time, though, small companies can deliver higher profit growth. They may also become more highly-rated if they are able to offer investors the promise of strong bottom-line increases in the long run. As a result, for less risk-averse investors, they could be of interest.

Ethical businesses

While ethical investing may not be an obvious choice for many investors, Charlie Munger is a proponent of the idea. He believes that a good business is an ethical business, and this could mean that investors should focus more on corporate governance in future. After all, a company with high standards of governance may be less risky than a stock that is less clear with its performance and outlook.

With the internet providing a wealth of information easily and without cost in many cases, it has never been simpler for investors to focus on corporate governance. In doing so, it may be possible to unearth potential risks with existing holdings, while being able to improve a portfolio’s overall risk/reward ratio for the long term.

 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Rolls-Royce shares are on a tear and could climb even further!

The UK government's nuclear energy ambitions could spell even more profits for Rolls-Royce, with the shares already up 28% this…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

How do Nvidia shares measure up as a GARP investment?

Profits at the chipmaker are tipped to keep booming over the short term. Does this make Nvidia's shares an attractive…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Dividend Shares

£10,000 invested in BP shares 5 years ago is now worth…

BP shares haven’t performed terribly over the last five years. However, investors could have done much better in other areas…

Read more »

Investing Articles

1 FTSE 250 stock I’ve sold in February

Stephen Wright's been selling a FTSE 250 passive income stock this month. What changed his mind about his investment and…

Read more »

Investing Articles

Is right now a once-in-a-generation chance to buy UK shares?

According to Nick Train, UK growth shares are a ‘generational opportunity’. But are inventors really overlooking FTSE 100 tech stocks…

Read more »

Investing Articles

I’ve lost my faith in National Grid shares!

Harvey Jones is surprised to discover he's lost faith in National Grid shares to deliver reliable dividend income and growth…

Read more »

Investing Articles

Prediction: this UK tech stock will outperform Lloyds shares over the next 5 years

The outlook for Lloyds shares appears to be attractive right now. However, Edward Sheldon sees more long-term growth potential in…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

How much further can the Tesla stock price fall?

Tesla stock soared late last year, and now it's slumping. Which way will the winds be blowing by the end…

Read more »