Yes, correlations between asset classes around the world for both debt and equity may be much higher during periods of great calamity and uncertainty. In that case, people are selling everything and there may be no place to hide except with your cash under your mattress. (Please refer back to #2 for creating a liquidity buffer.) Those periods do pass, although they leave quite an indelible memory. Most successful investors don't focus on the searing specter of disaster, but look to what makes sense and has worked over the long term. Diversification has worked for good reason: Equities are driven by price and growth and bond prices are driven by the supply and demand for credit. Most of the time they will not operate in lockstep. Many foreign markets are driven by local economic conditions and demand-they will not all be influenced solely by what happens in Europe or the U.S. Diversification may not be the "free ride" some have claimed, but it is much more evergreen than any other investment phenomenon.

7. Only invest based upon your skills and outsource everything else.

If you are an experienced securities analyst who knows the way around balance sheets and income statements, by all means pick from among the 10,000 stocks worldwide based upon your expertise. If you have spent much of your life assessing the nuances of macroeconomic and global geopolitical influences on markets and asset classes then perhaps you would be able to make informed decisions about your short-term asset allocation between those various options. If you are a "techie" and really know whether the Kindle will beat the iPad or the new Blackberry is really a Black bust, then making a bet on Apple or Amazon or RIM might make some sense. Realize two things, however: First, there are thousands of people armed with more experience and more computing power and more timely information than you have; and second, whatever knowledge edge you think you have is likely in your imagination (behavioral finance folks call this an "over confidence bias"). Winning the investment game is a low-probability endeavor for the experts (arguably only about half of them get it right and it is their full-time job); for the armchair investor, winning is largely just a matter of luck, which is generally unsustainable. If you want to play this game, best to let the veteran experts play for you. That said, be mindful of which active managers you select and set reasonable expectations for their results. For many, however, the right approach is not to play the active investing game at all: develop a plan, including reasonable goals and approaches to rebalancing, and stick with it until your circumstances dictate a change.

8. Avoid implementing advice from unaccountable sages, pundits or "experts."

As the saying goes, free advice is usually worth what you pay for it. In the investment world, this is certainly true, but the opposite-the idea that expensive advice is necessarily of value-is often not. Another saying could be: Advice without accountability is like a sock without a match-it should be discarded or used as a rag. When you turn on cable and someone shouts or rings bells or blows horns, you should realize that this is not investing, but entertainment. When that person from the big brokerage firm goes on CNBC and tells you "we believe that technology stocks are poised for a dramatic rally," you should ask if you know their track record. You surely don't, so that advice is both free and unaccountable. Then ask why these seemingly intelligent people are providing this important information and not keeping it a secret for themselves and their clients. There is another saying: "if you see a situation that you do not understand, look for the financial interest." Free and unaccountable advice is usually not just of zero value to you, it is often just the opposite-only of value to those that provide it. For full disclosure, my firm gets paid to provide advice.

9. Don't share, boast or congratulate yourself on your past performance.

Be wary of the investment equivalent of "pride goeth before a fall." I have a picture in my office of the 9th hole on the U.S. Open setup at the Country Club at Brookline. With the rough up for the tournament, I, then a 15 handicap, was even par through eight holes. Heck, I was going to match Curtis Strange's final round! I was going to turn pro. Took a 9 on number nine. Shot a 55 on the back for a round of 95. After being in the investment business for almost 35 years, the picture reminds me that in managing and investing, the past is just that, the past. Investment success is one shot at a time, one day at a time, and then slogging year after year. When you are convinced you are good, and then tell others as though it is some sort of special sauce or birthright, you are doomed.

10. Apply the principles of Total Quality Management.

TQM has been around for a long time, and generally people think of it in terms of managing a business. Well, investing done well has to be thought of in just that way. It is a business, a serious business. The tenets of TQM are directly applicable to successful investing. First comes commitment and planning. Without these it is a hobby (which is fine, but just understand that experts depend upon hobbyists to make money). Second is empowerment-give authority to those with the ability to achieve. Third is fact based decision making-there is no room for hunches or guesses. Fourth is continuous improvement. "If it is not broke don't fix it" is replaced by "If I am not always trying to improve the process, it will get worse." And fifth, focus on the clients. Their goals are what count. Downside risk is what matters and how you did versus Frank or Joan is utterly meaningless. It is said that in the investment world,  you cannot eat relative performance.

You do have to love the world of investing though, it is one of hope and despair, of greed and fear. It is emotional and it is analytical. It is full of drama and yet for many it is a sport. There are winners and losers, sinners and saints (well very few of those), Davids and Goliaths. It is better than any soap opera, reality show or sitcom. In truth, there are stories everyday that can make people shake their heads and remark-they can't make this stuff up. Your resolution is to avoid being distracted by all of that. You are not a spectator; you are on the stage or the playing field. No one knows what 2012 will bring and you cannot control the ebbs and flows of the capital markets. You can, however, have a sound implementation plan to improve your odds of getting to your destination.

Timothy R. Barron is president and CEO at Rogerscasey, a a global investment solutions firm serving institutional asset owners and financial services firms for more than 40 years. Learn more at www.rogerscasey.com.

 

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