Our founder once read in The Wall Street Journal that “investing shouldn’t be confused with entertainment.” We couldn’t agree more, yet many investors still liken investing to gambling, staking their nest-egg, children’s education, or their legacy on hunches or someone else’s hot stock picks, even using terms like “bets” when discussing what should be replaced with a “strategy.” High-octane television shows and Hollywood films attempt to convince us that investing is a do-it-yourself American Dream project that will lead to prosperity and riches (however one might define the terms).
Unfortunately for the investing public, most financial information is delivered to us by media empires with ulterior motives: to increase their viewership, readership, ad revenue, and influence. They lead people to believe that yesterday’s news, today’s forecasts, and “mad” men with loud sound effects and rolled-up sleeves hold the secret to a secure future and mega-yachts. At East Bay Financial Services, we cut through the noise and take a different approach. Here are some of our guiding principles of investing:
- Own (don’t “trade”) interests in a diverse array of economically-viable assets and enterprises.
- Know what you own; also know why and where it fits in your portfolio.
- Control risk by understanding it and only taking as much as you need and can afford. Especially remember this when times are good.
- Keep costs low.
- Recognize areas where an advisor or manager can or cannot likely add value. Choose and pay them accordingly.
- Take human error and emotion out of the equation whenever possible.
- Markets are reasonably efficient over the long run, and unpredictably inefficient over the short run.
- Maintain reasonable return expectations and plan appropriately. It’s better to be pleasantly surprised than devastatingly disappointed. “Hope” is not an investment strategy.
- Don’t fall for market hysteria, media hype, or sales pitches.
- Taking small risks with small payouts but historically high success rates leads to financial success. Big bets on long shots often lead to lost sleep and/or wealth.
- Daily or weekly market fluctuations do not affect your long-run success rate; it should not affect your decisions, behavior, or outlook.
- What “the market” has done over the past days, months, or years tells you absolutely nothing about where it’s going.
- What, exactly, is “the market” anyway? While a good conversation piece, the Dow Jones (or any other market benchmark) is a poor reference point for determining the likelihood of meeting your personal needs, plans, and goals.