Old School Wisdom for the New World of Investing
There is no lack of information on the web, and no lack of ego and opinions when it comes to investing. Today an internet search of the word “investing” could generate 321 million results in .55 seconds. This engorgement of information makes it difficult to sift through and find the truly valuable material.
All this knowledge but very little wisdom. As we approach the 9th year of a bull market, I thought it would be a valuable time to reiterate some of the old rules of investing.
1. Don’t try and time the market.
This means waiting for the market to go down until you invest or pulling money out when you think the market will go down. The New York Stock Exchange opened in 1792. Since the beginning of public investing, no one has been able to consistently time the market with success. If you think you know something that no one else does, you don’t. Sorry! But it’s the truth. Don’t take it from me though, take it from the greats:
“Far more money has been lost by investors preparing for the corrections, or trying to anticipate corrections than has been lost in corrections themselves.”
– Warren Buffet
“I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.”
– Peter Lynch
“A decade of results throws cold water on the notion that strategists exhibit any special ability to time the market.”
– The Wall Street Journal
2. Be skeptical of get-rich-quick schemes.
If something seems too good to be true, it probably is. If an investment is up 1,000% in a year, it can go down 1,000% per year. This is called volatility; if an investment is volatile, it is risky. Anything that you put into a highly volatile investment, you should be comfortable losing it. If the word on the street is that there is an investment phenomenon that has high returns and little risk, that is something to be cautious of. To be clear, I am not saying to never make risky investments, rather, I am just saying to make sure you understand the risk of the investments you make.
“Speculation is most dangerous when it looks the easiest”
3. Be wary of arrogance, that of your own and that of others.
We have been in a nine-year bull market, which means we have a lot of winners out there, for the time being… After having picked winners for so long, there have been many out there that feel they have cracked the code, so to speak, but are not doing anything special. Many will confuse luck with skill and be lost when the next correction rolls around.
“In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”
– Warren Buffet
4. Make sure your investment portfolio has a purpose.
The sole purpose of your portfolio is to support what you are trying to accomplish both financially and in life. The purpose for your dollars will dictate how they are to be invested. Maybe they are for retirement, maybe for the down payment on a house, maybe they are to be passed down to your children, or their children. All of these different scenarios would mandate a different investment plan and allocation. No matter the level of wealth you possess, the sole purpose of your investments are to support the plan.
“All of financial success comes from acting on a plan. A lot of financial failure comes from reacting to the market.”
– Nick Murray
5. Seek the guidance of a trusted and competent financial professional.
This last one may come as a shock to you, but I would obviously recommend working with a trustworthy and competent advisor who can take the emotion out of your investing and provide an objective look at your portfolio. The right person can help educate you on how to accomplish what you want with your investments.
“For the 30 years ended December 31, 2015, the S&P 500 index produced an annual return of 10.35%, while the average equity mutual fund investor earned only 3.66%. The gap of 6.69 percentage points represents the diminishing returns. Recovering a portion of this shortfall would mean hundreds of billions of dollars earned by investors”
– Dalbar’s 22nd Annual Quantitative Analysis of Investor Behavior, for period ending 12/31/2015
North Star Consultants, Inc., Insurance Products and Services| CRI Securities, LLC – Securities and Investments | Securian Financial Services, Inc. – Variable Products and Securities | North Star Resource Group offers securities and investment advisory services through CRI Securities, LLC and Securian Financial Services, Inc. Members FINRA/SIPC. CRI Securities, LLC is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. North Star Resource Group is independently owned and operated.
This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is not indicative future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. Individuals should consider their own objectives, risk tolerances and time horizons when developing their investment strategy. Neither diversification nor asset allocation guarantee against loss, they are methods used to manage risk.
2174524 / DOFU 7-2018