While golfing with a buddy last week, he asked me to teach him all about investing. Easy enough, right? I don’t know all about investing. Lesson over. Of course, that’s not what he was looking for or expecting. I ended up sharing many of the concepts I’ve been addressing in this blog over the past several weeks such as time horizon and diversification. We had a good conversation and he actually took some notes, but I still spent the weekend thinking about his request because I wanted a coherent, comprehensive and concise set of points to share. Here’s what I came up with:
- Know thyself: Make sure you know what you believe about investing and ensure you’re aware of your emotions. In particular, understand that you will not act rationally all the time. Having a healthy appreciation of and respect for your decision making fallibility is essential.
- Understand the odds: You need to understand the odds you face and position yourself in such a way that you give yourself the highest probability of success.
- Have a plan and stick with it: Your plan should reflect your investing beliefs and the odds you face and should have safeguards that protect your portfolio from its worst enemy…your emotions.
- Have a long time horizon: Investing is a long-term game and needs to be approached as such.
- Diversify: By asset class, by geography and by investment strategy.
- Be patient: When faced with uncertainty and the accompanying emotions resist the urge to do something and just do nothing.
This is by no means a comprehensive list. One can obviously go into much greater detail. However, I wanted to develop a list that would be high level and not overwhelming for the majority of people. I think I accomplished that objective with this list.