5 top tips to boost your share market returns in 2016

Without a system, your investing returns will be a fluke. Take these five tips and integrate them into your buying process to avoid companies like Quickflix Ltd. (ASX:QFX).

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published December 23, 2015 7:58 am AEDT

Do you want a repeat of 2015?

The year has been a tough one for most Australian investors. The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) has retreated nearly 6% since January 1 but in reality most investors would've fared significantly worse as many of Australia's biggest companies have fallen even further.

Here are 5 actions you can take before the new year starts to get yourself off on the right foot:

1: Get rid of your lowest-conviction shares

These are the companies that you cringe at a little when you open up your portfolio, the ones you sometimes wonder "will the share price ever recover", or "I can't remember why I ever bought them".

If you have no faith in the company or share price recovering, why keep it? Do you reasonably expect Lynas Corporation Ltd (ASX: LYC) to pose a remarkable comeback in 2016? Last year I questioned whether Quickflix Ltd. (ASX: QFX) would survive 2015. It did not.

2: Reassess your risk tolerance

The old "sleep at night" test is important for both your sanity and your portfolio. If you're holding smaller, riskier companies where the payoff is likely a number of years away, you shouldn't have too much trouble watching the share price jump around. XERO FPO NZ (ASX: XRO) is a good example of this. If you can't sleep, consider selling these volatile stocks and buying a less volatile stock or an ETF.

3: Step back and think about what 2016 holds

I like to take a macro view before I make a micro (stock-based) decision. As with Quickflix above, and Metcash Limited (ASX: MTS) back in mid-2014 I looked at where I thought the industry was heading before buying an individual company. Metcash and Quickflix weren't (in my view) able to challenge their big rivals in the year ahead despite looking 'cheap'.

4: Don't ask your friends over Christmas

This is obvious, someone will suggest a gold explorer or a company pioneering the cure for all types of cancers in the next 12 months. It'll probably end in tears.

5: Review your decision-making process

If you're the sort of person that takes stock tips from friends and relatives, then you need to review your decision making process. Firstly, take a look at your portfolio and assess why you bought each company and check if that reasoning still exists.

Next, write a step-by-step purchasing checklist (the Motley Fool can help with this) so that you can record why you made each purchase and sale.

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