The target time for this strategy is about an hour a day of research and administration and returns of about 1% per week on average.
You have to do this most days and this is a serious commitment of time, if you miss a week you may miss your sell point and have wasted a few weeks work.
If you are doing this right and in a normal market you should be looking for typical returns of around 10%-40% per trade. The trade might be a buy and sell within a few days or a six months, or if you were wrong a year or so.
This shouldn't change much during the normal bull/bear cycles but in major market crashes you will need to be prepared to hold what you have for a few years.
Re-read the above paragraph, at some point in time growth will stop and you will have big paper losses, which is why this is more of a retirement pot strategy not an income one.
Talking about this sort of thing in the pub you always hit the attitude that 10% per year is a brilliant return "I have my fund managed by experts so why do you think that you can do so much better?"
You can do better because your pots are tiny which allows you to take advantage of opportunities that are too small for a professional trader with £10 million to invest this week, nor do your profits have to support the salaries, bonuses and infrastructure costs of a third party.
You will also find that many professional traders have rules imposed on them by their employers that say things like they may only trade FTSE 100, or FTSE 250 companies or those paying dividends over 3%.
As you are looking for a relatively small growth in share price you can sometimes get lucky and get a 5% growth the next day as a result of an unexpected announcement. There is nothing wrong with saying this is a significant part of my target growth and I am going to take it and move on even though it was less than originally targeted.
The daily routine will probably be something like
- Once a day read a company's annual reports for the last few years and make some notes, do you like them? By the end of the year you will have some understanding of all of the FTSE 100 and some of the FTSE 250 companies and what you think the share price should be.
- Look at the big movers and see what you know about them, find out the reason for the move and make notes.
- Look at the small movers and see what you know about them is this part of longer term upwards trend.
- Decide if any of your existing pots are at their sell points. If they are go back to your notes to see what you have flagged as a buy and check if they still are.
This is a lot of reading and a lot of thinking, but it is possible for many people done discretely on a smart phone in the canteen or on a tablet on the train in/home. If you drive in to work then it will be even harder.
The objective is be in the position that when you look at a share price you know what is going on with that company and whether or not it is a good buy without having to do a lot of new investigation.
It does take time to accept that the returns are often quite small in absolute money terms for example today I was quite happy when a £13K pot returned a 3% or £390 profit in a morning. It sounds such a tiny return for such a risk, but I was so confident that I understood why the share price was where it were it was going it was well worth having.
Time to stress compound growth again, these
trades compound over time, so by the end of the year your investment pot should be much larger than the one you started the year with.
At first glance it may seem that you can extend yourself to overseas exchanges, but this means longer hours, concerns over exchange rates, currency conversion commissions and higher dealing charges.
At this point you probably need to become a full time trader, yet this exposes you to new risks meaning that you probably need your full time job even more to subsidize these mistakes or allow time for recovery.
If you are planning on going on holiday it may worth considering selling some of your pots and holding the cash for the duration otherwise the holiday may cease to be a holiday.