What are some successful investing disciplines?
Successful investing disciplines are based on rules that have been proven over time, to result in portfolios that outperform relevant indices or the market generally. For our everyday lives, rules have been created for a number of reasons, one of which has been to provide for us to enjoy a relatively safe environment.
The following rules from the manager of a managed fund in New York are easily applied to our local environment and to investors who rely on fund managers to do the hard ‘stock picking’ work. (Where relevant, we have shown some commentary to fit the ‘managed fund’ model):
“Some Golden Rules (Extracted from the book: ‘Beating the Street’ by Peter Lynch – a former Investment Director at Fidelity in New York.)
- Investing is fun, exciting, and (but) dangerous if you don’t do any work.
- Behind every stock is a company. Find out what it’s doing. (Behind every managed fund is an investment team. Find out how they operate with their client-entrusted funds.)
- Often, there is no correlation between the success of a company’s operation and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. The disparity is the key to making money: it pays to be patient, and to own successful companies. (Speaking to ‘investors’ – who should hold investments for a number of years; rather than to ‘traders’ who tend to move with the ‘excitement’ of the market on a short-term trading cycle.)
- Long shots almost always miss the mark. (Even traders need to be very vigilant.)
- Never invest in a company (managed fund) without understanding its finances (features as to size, capacity, style and method, team longevity etc). The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.
- With small companies, you’re better off to wait until they turn a profit before you invest.
- A stock-material decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.
- Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds [managed funds in Australia] altogether.
- Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the company in which you’ve invested.
- If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
- In the long run, a portfolio of well-chosen stocks and/or equity mutual funds will always out-perform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won’t out perform the money left under the mattress.”
Whilst the above is not exhaustive, the rules are a good indicator of some of the regular activity undertaken at Continuum Financial Planners Pty Ltd to select and monitor the managed funds into which we recommend our investor clients commit and continue to keep, their money.
We hear from our clients that they enjoy the peace of mind that our processes bring them over the near-, medium- and longer-terms. They accept them as successful investing disciplines. We encourage clients to contact us whenever they have needs or concerns regarding their investments and/ or financial situation – and to spread the word about our professionalism, and our caring – to family, friends and colleagues.
Originally posted in May 2011, this article has been occasionally updates/ refreshed, most recently in August 2021.