Investment Principles to Live By
by Randall J. Cloud
When it comes to investing, the truth is I cannot predict the future nor can you or anyone else. Mistakenly, too many people believe they can predict the future.
We can see this pervasively in the financial media who are under pressure to sell advertising space which is easier to do if they generate viewership and readership.
The most effective method they have found to do this is to send the message to the public they can predict the future through their “experts”.
You must ask the question, if these “experts” know the future whether short-term or long-term, why are they telling me? By telling me, would they not be giving away profits by sharing the information with the public?”
The good news is you do not have to be able to predict the future to be a Successful Investor. Realizing this simple truth, you can now focus on the things you can control when it comes to investing.
Embrace Market Efficiency / Prices
The Market is the greatest information processor in the world. Statistical evidence suggests people in the long-term are better served being investors rather than speculators.
Speculators believe market prices are inherently wrong and attempt to predict and forecast the short-term direction of prices.
Investors believe market prices reflect all information about companies and economies and the opinions of all investors about past, present, and future economic and political circumstances.
Investors trust market prices. Bottom line, what does one speculator or a small group of speculators know that the millions of other investors around the world do not know about anything (also known as the “The Market”)?
Therefore, I believe the Market is your friend and can help you to retire, educate your kids, and to pass wealth to future generations. Stock picking, timing the market, and forecasting are all ways to reduce the likelihood of you reaching your goals.
Broad Diversification
Rather than attempting to pick companies, forecasting the direction of the market, and predicting what the Federal Reserve will do, statistical evidence suggests investors in the long-term are better off owning the market.
Increasing the number of companies in your portfolio will increase your return over time.
Owning all the publicly traded companies around the world is the objective.
Risk and Return Tradeoffs
While being Broadly Diversified Globally, portfolios adjusted for the risk and return tradeoffs that matter offer higher expected returns over time.
With the help of financial economic science, tilting toward smaller, value, and the most profitable companies will increase your long-term portfolio expected return.
Investor Discipline
Unfortunately, the news media, speculators, and friends will test your investment discipline in time by offering up investment ideas and investment advice that ultimately will reduce your lifetime, long-term investment return.
Those who overcome the noise by sticking with this time tested, well documented investment philosophy will find success in reaching their goals.
Conclusion
The most prudent course of action is to use the power of the Market to help you reach your goals. The good news is you do not have to be able to predict the future to be a Successful Investor.