Personal portfolio management is not a competitive sport. It
is, instead, an important individualized effort to achieve some predetermined
financial goal by balancing one’s risk-tolerance level with the desire to
enhance capital wealth. Good investments management practices are complex and
time consuming, requiring discipline, patience and consistency of application. Too
many investors fail to follow some simple, time-tested tenets that improve the
odds of achieving success and, at the same time, reduce the anxiety naturally
associated with an uncertain undertaking.
I hope the following advice will help:
A fool and his money are soon parted. Investment capital
becomes a perishable commodity if not handled properly. Be serious. Pay attention
to your financial affairs. Take an active, intensive interest. If you don’t,
why should anyone else?
There is no free lunch. Risk and return are interrelated. Set
reasonable objectives using history as a guide. All returns relate to
inflation. Better to be safe than sorry. Never up, never in. most investors underestimate
the stress of a high-risk portfolio on the way down.
Don’t put all your eggs in one basket. Diversify. Asset allocation
determines the rate of return. Stock beats bonds over time.
Never overreach of yield. Remember, leverage works both
ways. More money has been lost searching for yield than at the point of a gun
(Ray DeVoe).
Spend interest, never principle, if at all possible, take
out less than comes in. then a portfolio grows in value and lasts forever. The other
way around, it can be diminished quite rapidly.
You cannot eat relative performance. Measure results on a
total return, portfolio basis against your own objectives, not someone else’s.
Don’t be afraid to take a loss. Mistakes are part of the
game. The cost price of a security is a matter of historical insignificance, of
interest only to the IRS. Averaging down, which is different from dollar cost
averaging, means the first decision was a mistake. It is a technique used to
avoid admitting a mistake or to recover a loss against the odds. When in doubt,
get out. The first loss is not only the best bus is also usually the smallest.
Watch out for fads. Hula hoops and bowling alleys (among
others) didn’t last. There are no permanent shortages (or oversupplies). Every trend
creates its own countervailing force. Expect the unexpected.
Make decisions. No amount of information can remove all uncertainties.
Have confidence in your moves. Better to be approximately right than precisely
wrong.
Take the long view. Don’t panic under short-term transitory developments.
Stick to your plan. Prevent emotion from overtaking reason. Market timing generally
doesn’t work. Recognize the rhythm of events.
Remember the value of common sense. No system works all of
the time. History is a guide, not a template.
This is all you need to know.
