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Do You Follow the Three Principles for Investment Success?

The management of investment decisions is not an easy task, even for trained investment professionals; and a nearly impossible task for others. When faced with choosing among the many different ideas you hear and read about how to invest, many investors don’t know whom to turn to for guidance.

Let Authoritative Bodies Guide You

I recommend that you let authoritative bodies guide you. Follow (require anyone advising you to do the same) what has been carefully considered and found to be reliable by

  1. Courts (judges and juries),
  2. The American Law Institute,
  3. The National Conference of Commissioners on Uniform State Laws,
  4. Those selecting recipients of the Nobel Prize in Economic Sciences, and
  5. Professors at leading MBA and graduate school finance programs throughout the United States.

These authoritative bodies recommend (in some cases, demand) that decisions be grounded in widely accepted economic and financial principles that

  1. Are supported by evidence found through rigorous, independent research that follows the standards required of academics using scientific methodologies and
  2. Remain relevant – incorporating wisdom that develops through the years.

Require Empirical Evidence Subject to Peer Review

I recommend that you require that recommendations be based on ideas that have been confirmed by significant empirical evidence developed through extensive research that has been conducted by academics using rigorous scientific methodologies and subject to peer review.

Follow Three Principles

Because investment plans work best when they are followed consistently, you will benefit from relying on the following three principles:

  1. Are easily understood by you and others in your family easily understand, regardless of professional background or investment expertise.
  2. Be based in principles that are widely accepted so as to avoid debate. (See above)
  3.  Follow a prudent process for the successful management of investment decisions.

What To Do?

So, what do these authoritative bodies tell you to do when stock prices drop more than 3% in one day, following days and weeks of pundits decrying pending doom after eight years of sustained growth?

They will tell you (or you will learn from the rigorous, independent research cited by authoritative bodies) that people all over the world are asking the same questions, causing the current price to be the best estimate of each stock’s current value. In fact, regardless of what happened today, you can go to bed tonight confident that your broadly diversified investment portfolio is ok.

You can take comfort in knowing that the laws of economics, especially that you should expect higher returns from investments that are subject to sudden price drops, are intact. In fact, you have every reason to believe that you should wake up tomorrow feeling optimistic, believing that your investments will deliver a positive return – well, if not tomorrow, over your investment horizon.

As confirmed by the success of index funds (and the mutual funds described in Investing 3.0: What the Creators of Index Funds Discovered and How to Profit from It), you should maintain the percentage of your portfolio invested in stocks and keep your costs low by avoiding transaction costs and the (timing) risks of missing out when the stock market turns up again.

What’s next? 

I’m drafting this message to you Wednesday evening, October 10, 2018, in advance of what may be a wild ride for the next little while. By the time you’re reading this, prices may still be tumbling, or they may already have recovered their footing. We can’t say.

Come what may, I hope we can be particularly helpful to you at this time.

Have current conditions left you troubled, unsure of where you stand? Let’s talk. We’ll explore whether you’re able to sit tight with your existing strategy, or whether we can help you think through any next steps you may be considering. Most of all, know you are not alone! We are here as your sounding board and fiduciary advisor. Your best interests remain our top priority.

Are you reflecting calmly on current events, recognizing that market volatility happens? Allow us to applaud you for your stamina, and remind you: Current conditions likely represent a time for continued quietude, along with ongoing attention to managing your tailored portfolio.

Let’s be in touch if we can answer any questions or scale down any angst you may be experiencing.

If you know others who could benefit from this message, please share it with them and let them know that I’m available to talk.




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