Be disciplined and decisive, not arbitrary and emotional.
Investing Tenet #1: Be Disciplined
As a stock investor, a disciplined approach to research, buying and selling rules are critical to success. Achieving long term success requires discipline. It’s life: Whether striving to get in better physical condition, becoming proficient at a new skill, or just managing time more effectively, discipline is required in order to succeed.
Investing Tenet #2: Know Yourself
Legend tells us “Know Thyself” was written on the forecourt of the Temple of Apollo at Delphi by the seven sages of ancient Greece. One of them, Thales, when asked what the most difficult thing was, replied, “To know thyself.”An investor must know him/her-self to be successful. This is the ‘Be true to you’ rule. Knowing your investment parameters and constraints will help you stay true to you.
Investing Tenet #3: Control You Emotions
The one important lesson I want to impart on anyone wishing to invest successfully is: control your emotions. Emotions can be an asset in life, but liability in investing. Successful investing requires a high “EQ” (“Emotional Intelligence”). Greed, fear and hope have no place in investing. Build a plan based on your goals and stick with it. That’s the only story that matters. As Don Hays once said, “Emotions are your worst enemy in the stock market.”
Investing Tenet #4: Time-In, Not Time-ing
Throughout the ’80’s and ’90’s I taught an investment class. “Market timing” was a popular topic with the students. I talked them out of it. A key to successful investing is time; it is the amount of time in, not the timing, that matters. Time in the stock market does two things: It reduces risk and avoids the cost of being out. The longer the time in the market, the lower the risk.
Investing Tenet #5: Process before Product
Investing is a process. In fact, it is a never-ending process. At the least, it involves the ongoing monitoring of investments held. Every investor should understand the investment planning process before buying any investment product. Think, “Put the cart before the horse.” I maintain a six-step process, beginning with clear investment goals and objectives. The last step is “On-going Monitoring,” which is comprised of the “3 E’s”: Evaluate, Educate & Exchange.
Investing Tenet #6: Go With What You Know
Being aware of what you trust, buy, use, and like can lead to a common-sense approach to investing. My “Top Ten Tenets” share one theme: invest-sense. “Invest-sense” is a term I use to imply the combination of intuitive common sense and a sound psychology leading to successful investing. As Warren Buffet puts it, “If you don’t understand it, don’t buy it.” The “go with what you know” tenet is simple and can make investing more engaging. Couple this with more analysis. You have to do the work. Investing requires research.
Investing Tenet #7: Minimize Losses & Maximize Gains
It’s intuitive: Cut your losses. Most of us have heard this before. “Cut your losers; let your winners run.” It may be as common as the basic investment axiom, “Buy low and sell high.” Minimizing losses is a critical, non-negotiable investing rule. Avoiding large losses and holding on for possible extreme gains precludes potentially unrecoverable losses and allows for big winners.
Investing Tenet #8: Concentrate to Accumulation & Diversify for Preservation.
Common wisdom isn’t always the best wisdom. Diversification is common investment wisdom. For some it may not be wise. The opposing investment approach to diversification is “concentration.” Maintaining a ‘less-is-more’ conviction, concentrated stock investors choose to invest a lot of money in a few companies. $1,000,000 evenly invested among 8 – 10 stocks is a concentrated portfolio. The best of the two should be answered by which is best for a specific investor. Too much diversification can dilute profit potential. Too much concentration can be dangerous. Knowing your investor-self will help you with concentration vs. diversification.
Investing Tenet #9: Be Contrary, not Ordinary
Sir John Templeton contends, “To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage but provides the greatest profit.” Contrarian investing can feel counter-intuitive. Many think, “buy low and sell high.” The bargain hunting approach is often wrong. A contrarian investor would prefer to “buy high and sell higher.” Contrarian investing was famously expressed by Baron Rothschild, who said “The time to buy is when there’s blood in the streets.”
Investing Tenet #10: Put Risk Before Return
Last on the list, but not in importance, #10 is the heart of my investment philosophy: “Investing is a process that should be based on a disciplined approach to risk management.” As Bernard Baruchsaid, “There is no such thing as an investment that doesn’t have some degree of risk.” Strive to minimize the risk inherent in all investments before chasing returns.
In 1999, 15 years into my career, I compiled my Top 10 Tenets list as I realized the need to establish a reliable, rules-based investment process. These guiding principles have been invaluable to me and I hope they are to you, too.
John is a Certified Financial Planner® and veteran investment advisor and portfolio manager in Blackhawk. He began his career as an investment advisor professional in 1984. For 34years, John has researched stocks, managed equity portfolios and provided strategic investment advice to individuals, families and businesses. John founded Equity Research & Portfolio Evaluation, Inc. (ERPE) in 2001 to provide independent equity research and an unbiased evaluation of investment accounts to high net-worth investors. John has worked closely with employees and executives to prepare for retirement and develop post-retirement investment plans. He is dedicated to providing comprehensive investment advice and unbiased management to individuals consistent with their risk tolerance and objectives to enable them to achieve their investment goals.
John can be reached at 800-925-6496 or by email at jg@erpeinc.com. See more at www.erpeinc.com
Leave a Reply