UK shares have the potential to multiply my wealth over time. They also have the potential to send me to the poor house and I could lose all my money.
But negative possibilities don’t stop many investors from dreaming, planning and aiming to make life-changing sums of money by investing in UK shares. And I’m one of them.
Outperformance is possible
And some investors have done well in the past. A good example is American Peter Lynch who managed the Fidelity Magellan Fund from 1977 to 1990. Lynch averaged a 29.2% annual return over that period. And that was more than double the return delivered by the S&P 500 index. Under Lynch, Magellan was the best-performing mutual fund in the world.
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Peter Lynch picked stocks, took profits and cut losses to achieve an impressive outperformance. And he did it while managing millions of dollars of money. And if Lynch did it while encumbered by the weight of millions to invest, it’s surely possible to invest well with lower sums.
The prize is worth shooting for. If I could invest £1,000 and equal Lynch’s annualised performance I’d end up with just over £42,500 after 13 years. And, of course, if I invested more, I’d potentially end up with an even bigger sum.
However, according to ace stock trader Mark Minervini, even the very best stock-picking investors struggle to make annual returns consistently higher than around 30% to 40%. And most see annual gains much lower than that. Many achieve gains outcomes close to those delivered by the major stock indexes such as the S&P 500 and the FTSE All-Share. And it’s not uncommon for private investors and fund managers to fall short of the gains delivered by the overall market.
A personal strategy for UK shares
But even smaller annual gains than those achieved by Lynch can compound into a substantial sum over time. And I reckon the constant evolution of my personal UK share investment strategy is one of the keys to my own success in the markets.
My belief is that no two investors will have exactly the same strategy. And that’s a good thing because we all have different personalities, temperaments and emotional tolerances. My strategy has to fit well with me. Just like a tailor-made suit that’s been hanging on my frame for a few years — it needs to be comfortable and I need to feel good in it.
And for me, an investment strategy is something to work hard at improving. My aim is to feed back all my experiences — good, bad or neutral — so that my approach to investing gets better and better over time.
So, with £1,000 to invest right now, I’d look for stocks backed by good-quality businesses with decent forward growth prospects. And I’d aim to buy a stock when it valued the business fairly and add the position to my diversified portfolio. However, if this was my first investment, I’d probably aim to invest in a quality managed share fund for the benefits of diversification with many underlying companies.
