Are you ready to become a better investor – to enhance your understanding of the most important principles that drive the creation of wealth – without it hurting a bit?
Investing just means purchasing ownership of – and/or lending money to – companies, that operate around the world. These companies provide goods and services to the masses. The value of investing in these companies will depend upon their ability to perform these activities in a profitable way. There is lots of content printed that will make investing seem overwhelming and “tricky”; but here are 8 simple truths:
- The Prices You Pay – Understanding group intelligence and its effect on efficient market pricing is a first step to successful investing. Rememeber, the whole goal is simply to buy low and sell high, as consistenly as we can.
- Ignore Daily Market Pricing – Rather than trying to react to ever-changing conditions and cut-throat competition, invest your life savings according to factors over which you can expect to have some control.
- Financial “Gurus” – All available evidence indicates that their ability to persistently beat the market is fleeting and not repeatable.
- The Full-Meal Deal of Diversification – In place of speculative investing, diversification is among your most important allies. Spreading your assets around dampens unnecessary risks while potentially improving overall expected returns.
- Managing the Market’s Risky Business – All risks are not created equal. Unrewarded “concentrated risks” (picking individual stocks) can and should be avoided by diversifying away from it. “Market-related risks” (holding swaths of the market) are expected to deliver long-term returns. Diversification helps manage the necessary risks involved.
- Ride The Wave – Diversification can also create a smoother ride through bumpy markets, which helps you stay on track toward your personal goals.
- The Business of Investing – At their essence, market returns are compensation for providing the financial capital that feeds the human enterprise going on all around us.
- The Essence of Evidence-Based Investing – What separates solid evidence from flakey findings? Evidence-based insights demand scholarly rigor, including an objective outlook, robust peer review, and the ability to reproduce similar analyses under varying conditions.
We’ll leave you with three key insights for becoming a more confident investor:
- Understand the Evidence. You don’t have to have an advanced degree in financial economics to invest wisely. You need only know and heed the insights available from those who do have advanced degrees in financial economics.
- Embrace Market Efficiencies. You don’t have to be smarter, faster, or luckier than the rest of the market. You need only structure your portfolio to play with rather than against the market and its expected returns.
- Manage Your Behavioral Miscues. You don’t have to – and won’t be able to – eliminate every high and low emotion you experience as an investor. You need only be aware of how often your instincts will tempt you off-course, and manage your actions accordingly.