Life is about decisions, decisions determine destiny. It is our goal to help everyone achieve financial contentment. In doing so it is important to understand our philosophy of managing money. The four basic principles outlined here are really nothing more than basic common sense. Our entire investment methodology is based on them.
I discovered a vital principle of investment: while it is difficult to accumulate investment capital, it is very easy to lose it. Many Firms and Money Managers were very good at identifying companies whose stock values would rise in rising markets. But had no disciplines in place for preserving capital in falling markets as I came to realize during the bear markets. I have decided that I needed to plan for falling markets and to have a plan to avoid losing capital.
Investments are nothing more than tools to accomplish objectives. Without objectives, it is impossible to select the right tools to get the job done. I’m continually amazed by the number of people whose primary objective is to “make money” with their investments. Most people would probably not leave on a vacation without knowing where they were starting from, where they were going, or how much time and money they could devote to this vacation. In my experience, this is exactly what many people do in their financial lives. Many people go through their financial lives with their fingers crossed, hoping for success. I want my clients to uncross their fingers, clearly define their objectives, and allow me to help them devise a strategy that will realize their objectives.
Think about this for a minute. How many people do you know who became financially independent because of investment performance? In the last 23 years, I’ve met one. The vast majority of financially successful people are disciplined savers. The best example to illustrate this point is school teachers. These people never make much money but many retire with more income than they ever earned in their working lives. How do they do this? It’s quite simple: they voluntarily reduce their salaries and contribute money each month to a tax-sheltered annuity program. Experience taught me that savings and capital preservation – not investment returns – are the most important ingredients of financial success.
Capital markets are unpredictable. If anyone really knew the future direction of any market, they could become incredibly wealthy in a matter of weeks. The key then is to focus on controlling risk by understanding the types of risk we face and the techniques to manage them. There are risks in every investment. The important thing is to know what these risks are, how to control them, and to take no more risk than is necessary to accomplish the objective(s). .