In this day and age, it can be hard to build your portfolio and achieve strong, consistent capital gains in the market.
Even the great Warren Buffett himself has seen his market outperformance or "alpha" slowly dwindle over time as we've entered the Information Age.
So, I've outlined 3 top tips below to help you increase your chances of success with your stock picking on the ASX in 2020.
1. Strong long-term product and industry focus
Whether you're a top-down or bottom-up type of ASX investor, the long-term potential of the company's industry and the product is essential.
For instance, if you're a big believer in Vocus Group Ltd (ASX: VOC) for its 5G network technology or Cann Group Ltd (ASX: CAN) as a top ASX cannabis stock, narrowing your investment options down to companies with exposure to these sectors is vital.
By doing so, you can keep your eyes on the long-term upside of your investments and resist the temptation to engage in day trading type behaviour in the short or medium-term.
2. Watch your potential winners for 3–6 months before buying
After narrowing down your potential investment companies to a select few, the next step is to watch these ASX companies and their share prices for 3–6 months before buying.
By doing so, you can see what really makes these companies' share prices move on a day-to-day or month-to-month basis.
While you might be investing in an ASX stock for exposure to the 5G network, you might find that the company's share price movements are actually driven by interest rate movements if they're heavily leveraged or trade war concerns if they're reliant on Chinese demand for their products.
By watching these share price movements over a 3- to 6-month period, you can see what exposure your investment really has, and be prepared to accept those risks and rewards in the medium-term.
While you might worry about missing out on potential gains, if you're serious about long-term investing, the next 3 months or so shouldn't matter to your overall investment success.
3. Set your own trading limits
It's best to go into any investment with a clear idea of your upper investment thresholds and just how much exposure you want in your ASX portfolio.
By doing so before you invest, you can set a clear picture in your mind of how much of a loss you're willing to take before selling out, and even at what point you'd be happy to lock-in your potential gains.
It's a great idea to write down your key numbers and reduce the risk of getting caught up in short-term sentiment or momentum trading in the months after buying.
By implementing these 3 simple steps, you can greatly boost your chances of success in your ASX stock picking and boosting those portfolio gains higher.
