Having a simple set of investment rules could prove to be highly valuable, given the uncertain outlook for the stock market. Economies across the world are set to experience sharp declines in GDP growth and a rise in unemployment figures due to the lockdowns put in place to contain coronavirus.

By investing in companies you understand, buying them at a discount to their intrinsic value and ignoring market noise, you could capitalise on the current uncertain outlook for the stock market.

Investing in what you know

It is impossible to have a sound understanding of every sector and industry within the stock market. As such, it makes sense to focus your capital on those areas where you have a solid foundation of knowledge. It may mean that you find it easier to spot investment opportunities that go on to deliver high returns in the long run.

Similarly, it may mean that you avoid unnecessary risks. Someone without a good understanding of a sector may miss an obvious threat to its future, while an investor who has knowledge of the industry may be able to avoid common mistakes.

While it takes time to acquire knowledge about companies and the sectors within which they operate, only investing in what you understand can improve your risk/reward ratio. If you have limited knowledge, it may be a good idea to only invest in a small number of sectors and use tracker funds to obtain diversification with the rest of your capital until such a time that you have sufficient knowledge to invest directly in a range of businesses.

A margin of safety

Another investment rule that could improve your returns is obtaining a margin of safety when purchasing a stock. This essentially means that you value a company, and seek to buy it at a discount to that price. This strategy provides risk reduction, since there is a margin of safety in case unforeseen events occur or your analysis has missed relevant issues that impact negatively on a stock’s price.

At the present time, many stocks trade on wide margins of safety. As such, there appear to be numerous opportunities to obtain a large discount to a company’s intrinsic value across the stock market.

Market ‘noise’

Market ‘noise’ is the views and opinions of other investors that could influence your investment-making decisions. Ignoring them can be difficult, but also beneficial to your overall returns in the long run.

Many investors become overly emotional during boom and bust periods. This can affect their decision-making ability, and following their views can likewise be detrimental to your portfolio’s performance.

Therefore, having an investment rule that ignores the views of your peers and instead focuses on facts and figures when deciding which companies to purchase could be a means of strengthening your portfolio’s long-term outlook.

More reading

• EML Payments and these ASX mid cap shares could be destined for big things
• What the 10 largest companies in the world have in common
• Why is it so hard to outperform the ASX 200 index?
• These quality ASX dividend shares have very juicy yields
• Why the Appen share price fell nearly 5% today

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 simple investment rules I follow appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Y1SAjY

If exciting small cap ASX shares like Whispir Ltd (ASX: WSP) are too small for your tastes, then you might want to have a look at the mid cap side of the market.

At this side of the market I believe there are a number of shares which have the potential to grow very strongly in the future. Perhaps even to the point that they one day become large caps.

Three top mid cap ASX shares to consider buying are listed below:

BINGO Industries Ltd (ASX: BIN)

BINGO is a leading waste management company which I think has a lot of potential. This is thanks to its expansion opportunities in Australia and the game-changing acquisition of rival Dial a Dump Industries. The addition of Dial a Dump Industries has transformed BINGO into a fully vertically integrated business from collections to landfill. Although the pandemic is likely to weigh on its short term performance, I think it is worth focusing on its very positive long term prospects.

EML Payments Ltd (ASX: EML)

Another mid cap share to consider buying is EML Payments. It is a payments company with a focus on digital gift cards and pre-paid cards. It also provides the technology that supports certain buy now pay later offerings. The company has been growing at a very strong rate over the last few years. Pleasingly, I believe it is well-positioned to continue this positive trend once the pandemic passes. Especially following the recent acquisition of Prepaid Financial Services. This acquisition gives EML exposure to banking as a service (BaaS) and could be a key driver of growth in the coming years.

Opthea Ltd (ASX: OPT)

A final mid cap share to look at is Opthea. It is a developer of novel biologic therapies for the treatment of eye diseases. Last year Opthea reported very positive Phase 2b study results for its OPT-302 combination therapy. If its phase 3 trial is successful, the company has a multi-billion dollar opportunity treating wet age-related macular degeneration and diabetic macular edema. Another positive is that Opthea has a very strong balance sheet and appears well-funded to see OPT-302 through its remaining trials.

More reading

• 2 ASX growth shares I’d buy before Afterpay shares
• Could the Openpay share price signal a wider boom for BNPL?
• 3 small cap ASX tech shares that could be stars of the future
• 2 leading ASX tech shares to buy in June
• The 3 ASX tech stocks that helped this fund manager outperform in May

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited and Whispir Ltd. The Motley Fool Australia has recommended Emerchants Limited and Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post EML Payments and thse ASX mid cap shares could be destined for big things appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2UeluMx