The $20,000 Stockmarket Project

I've set this blog up to document a challenge I have set myself. The challenge is simple: to see what I can turn $20,000 into in one year on the stock market.

A bit of background about my investing history

I have been investing in the stock market for just over three years. I invest primarily on the ASX and NZX, but also the US markets. I spend a considerable amount of time following the market and researching companies to invest in. My risk tolerance is high, and I primarily invest in small cap growth companies. I avoid investing in speculative companies that have no earnings. I focus on finding profitable companies that have the potential to grow their earnings considerably in the mid to long term and that are undervalued because the market has missed them. I live by a lot of Peter Lynch's investing principals. I have had no formal education in the stock market. I am an engineer by training. I believe this places me in good stead because I have no industry biases and use my background in analysing problems to uncover good opportunities.

The Plan

One year is not long for a long term investor. Therefore, I have to be very careful with the companies I choose. I will be choosing companies that have strong potential to increase their earnings in the next year and beyond. Picking companies that are undervalued is also crucial. I will need to be invested before the hype begins.

The combination of undervalued and good short term earnings growth potential (as well as long term) gives me the best chance of the market rerating the stock over the next year. Good earnings reports will awaken the market and most likely increase the stock price.

This obviously isn't as easy as it sounds. Companies with good growth potential are often overvalued. Therefore, finding these companies is not easy and takes a lot of time.

How I will break down the $20,000

In order to achieve a level of diversification, remove timing risk and not be too time consuming, I have decided to apply the following rules:

-the portfolio will consist of 4 companies

-I will buy 2 parcels of stock of each company separated by a week.

These two rules are baby steps in terms of diversification and eliminating timing risk. A diversified portfolio should have more than 4 stocks, and timing risk should be eliminated by buying over a number of weeks or months. In this challenge I do not have this luxury!

I hope by following this blog you will learn something. I will log my progress here for my own records and for others to get insight into how I am approaching this. Please feel free to comment!

Nothing on this blog should be taken as investment advice.