A few days ago, a local investment web site asked me this question during an interview…
“After more than 25 years of experience in the investment field, how would you describe your investment philosophy today?”
It’s easy to be flip about this sort of thing. Who needs philosophy? We invest to make money… so is there any better investment philosophy than “Buy low, sell high”?
But investing is about a lot more than making money. It’s about priorities in your life and what matters to you. It’s also about positioning yourself – and your family and the people you care about – for a more comfortable and better future, however you define that. It’s also about balancing risk and reward, and balancing today’s desires and sacrifices with tomorrow’s payoffs.
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So this is how I explained my investment philosophy:
1. Invest, first of all, in yourself. I’m a big believer in taking a big-picture view of all of your assets, not only financial assets. It’s critical to assess your “personal equity”, like your network, your education, your experience, the languages you speak, the places you’ve lived – in a holistic sense. Your financial assets are only part of your picture. And over a lifetime, the returns on your financial assets will be driven by how you invest in yourself, and how you build your “personal equity“.
2. Every day, evaluate what you own. What your money is busy with right now represents your opportunity cost. The cash you have tied up in shares… the bank… your car… your house? Every day, you’re “buying” those assets because you could be using the money elsewhere. Ask yourself: Is that the best use of my money, today? If it’s not, think about how you’d better use your money.
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3.Know what you know. I firmly believe that you should only invest in what you know. But before you invest in what you know, well… you have to know something. And being an expert about anything – knowing a sector, economy, market, whatever – requires a lot of time and effort. Most importantly, don’t think you know more than you actually do.
4. Listen to yourself, first of all. Don’t follow the crowd, but don’t reflexively ignore it, either. Being a contrarian just for the sake of being different is silly. Following what everyone else is doing just for the sake of being “safe” is silly too. Your path needs to be your own. Buy cheap assets that are out of favour when their price is in the process of recovering. Finally… about investing. Overpriced stocks may go up further in price – but usually, not much further. Cheap stocks can remain cheap forever. If everyone is buying something, who are they going to sell it to? It’s much better to be an early buyer and an early seller, instead of a late buyer and a late seller.
As you can see, the “what to buy and when” part of my investment philosophy doesn’t raise its head until the end. And that’s the way I think it should be.
Publisher, Stansberry Pacific Research