The Investment Journey for (New) Investors Part II (Investment Checklist & Practicalities)

April 16, 2024

Investment Checklist

You need to determine whether you want to be a passive investor or an active investor. If your knowledge of the stock market is very limited then it is better to be a passive investor by investing in ETFs. The great thing about passive investing is that it doesn't require a lot of effort and you can still obtain excellent results. To be an active investor can be very difficult because your goal is essentially to beat the market. Another consideration is to predominantly invest passively and allocate a small portion of your portfolio to active investing or individual stock picks and increase the allocation to active strategies as you gain more knowledge.

Try to answer the following questions in order to determine whether you want to become an active investor:

Do I want to research stocks for at least a few hours a week?
Do I know how to distinguish a good business from a bad business?
Do I know how to value a business or stock or want to learn this?
Do I know how to track my investment performance accurately or want to learn this?
Is my strategy to outperform the market logically, what will be my edge?

To be an active investor, it would be wise to have a passion for investing and display the willingness to investigate/research various investment opportunities. Remember for each buyer of a stock there is a seller so your job is to be a sophisticated buyer when you buy a stock and a sophisticated seller when you sell a stock. 

It is important to distinguish a good business from a bad business as, over the long term, business results matter. For example, a soft drinks company like Coca-Cola is inherently a better type of business than an automaker like Toyota. More yet, it is ideal to buy a good business at a good price to avoid the risk of overpaying.

This brings me to my next point, to be an active investor you need to know how to value a business to determine whether you have a good opportunity or a bad opportunity. Each business has a price no matter the quality of the company. If you know how to value a company you will also have an idea of when to sell a company.

Another very important topic is performance tracking if you wish to actively manage your portfolio. This entails using a performance metric like money-weighted return to measure your portfolio performance and choosing a benchmark (e.g. SP500) to compare your performance with.

Let's look at an example:

You invest R100000 for 10 years in individual stocks and you ignore performance tracking. At the end of the 10 years you managed to earn 6% per annum which equates to R179000. In the same period an ETF earned 10% per annum equating to R259000. Without knowing it you could've earned R80000 more had you decided to invest passively.

Now let's say you are tracking performance and you realise you are failing to outperform so you switch to passive investing after 4 years and earn 10% per annum the last 6 years. After 10 years your investment equates to R223000 saving you R44000 from switching to passive investing. 

Finally, before starting, and assuming you do want to pick individual stocks, ask yourself what strategy will I be implementing. Remember there's many market participants and you need to think about what you will do that is different to the average participant. Other considerations include the number of stocks you want to buy, position sizing, types of stocks e.g. value/growth/dividend stocks and many more. These questions can't be answered in this post, but just thinking about these type of questions will already put you in the top 20% this is very different than "buying a stock because my neighbour told me it's a good buy".


You are in a good financial position which means that you can start immediately! It might take you awhile to determine whether you want to invest more actively or stick to passive investing, but you can start immediately by buying ETFs as it is a diversified product that yields good results over the long term.

So the first thing you need to do is to open an investment account. Easyequities is a good choice for South African investors as it allows you to invest in various geographical markets and asset classes.

The ideal is to open a brokerage account and to invest monthly, consistency is key.

If you buy individual stocks, you need to consider tracking your performance. Consider using google sheets as this is quite convenient, see link for an example.


What would make your process even more precise is to have a value estimate for each company so that you can track whether the stock you bought is undervalued or overvalued over time. Also, for each stock you buy, write a quick summary of why you bought the stock and the potential risks since this will help you in the future to remember your thought process and initial reasons for purchasing the stock. Finally, create a watchlist or set alerts for potential stocks you would like to buy when, for example, these stocks become more cheap. Good resources includes:

Seeking Alpha
Yahoo Finance

Let's finish with an example:

I've done my research and decided to buy Coca-Cola. The current price is $64 and I've estimated that the stock might be worth $75. 

I buy the stock and note the following:
"Great brand and established business. A risk might be that the business will grow slowly in the future so keep an eye on revenue numbers." 

Next, I keep track of my Coca-Cola purchase in my portfolio tracking spreadsheet.

In the meantime, I've also added both Pepsi and Monster Beverage to my watchlist on Easyequities so that I can be opportunistic when either company's share price fall below a certain price the Easyequities app allows you to set alerts on companies which notifies you when the share price drops below a certain threshold.

I hope this two part series helps you to avoid the common pitfalls I struggled with when I started with my investment journey.

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