10 Insights About Investment Strategy You Need To Know
I thought it might be helpful to insert some rational information into our current environment given the craze around short selling, day trading, short term speculation, etc. These may seem like basic points but that doesn’t make them any less important. These are principles that we adhere to when we invest your hard-earned funds.
- Dogmatic belief is a key killer of prudent investment strategy. Anyone who thinks they know for sure, probably doesn’t know for sure. I have found that being humble enough to recognize you don’t have all the answers allows you to be balanced in your perspective.
- Discipline is required to avoid temptations and to chase headline grabbing so-called “opportunities”. Investment discipline is just like going on a diet. It’s 11:00 at night and the cheesecake sounds so good right now. Do we have the discipline to resist? That’s exactly how investment strategy works; you must be firm and avoid temptations presented by the market and the media.
- Greed is not good when it comes to investment strategy. What is appropriate is a focus on growing funds with prudent controls in place to avoid emotional excesses.
- An investment plan must be married to a financial plan to determine what the right investment strategy is for each person’s situation. Investment strategies should not be designed in a vacuum. They should be designed specifically for you, your goals, and your family’s situation.
- Financial media headlines come and go faster than you imagine. Don’t think because something is a headline this week that this necessarily makes it important or of lasting significance.
- Taxation matters. Understanding current tax law, as well as pending proposals, can lead to appropriate adjustments to investment strategy. It’s not how much you make; it’s how much you keep is an old adage that is absolutely true.
- Beware of hot tips. Ideas should be welcome but hot tips often are driven by rumor, misinformation, significant emotion, and dogmatic belief. Be wary.
- Measure results long-term. Short-term success is often good luck. Short-term disappointment is often bad luck. Successful investment strategy is not built primarily on luck but instead on prudent fundamental analysis, careful review, and consistent monitoring. Long-term matters.
- When you listen to others talk about their investment successes, remember that human nature is to only remember the good. Just as in Las Vegas, people often vividly remember the money they won and not the money they lost.
- Recognize that you can’t be right all the time. It is an absolute truth that all investors (including the best investment experts) will be wrong about some of their judgments, positions, and investment strategies. This includes us. This is why diversification is so key; no one is right all the time.
Sound boring? It may be but I believe these points can help lead to investment success. Get rich quick schemes, speculation, and short-term website trading is not the key for a rational, successful investment strategy. Being prudent and responsible, with a well thought out plan, is the key to success.
Always remember the story of Levi Strauss, the entrepreneur that made his fortune during the California gold rush. Levi Strauss wasn’t pursuing gold. Gold was the frenzy at the time with people moving across country abandoning their lives to find quick riches. Instead, Levi Strauss sold speculators sturdy jeans. Simple, boring clothing items helped him be successful. It wasn’t speculation, it was a well-thought-out strategy to capitalize on the current environment. He wasn’t chasing headlines.