My hope is to focus you on a few common sense ideas that are all you need to be a successful investor.
This section covers six topics on what works (and doesn’t work) in investing. Hover over the tabs to the left for the key take-way for each. Click on each tab for a more detailed exploration, including numerical illustrations and practical suggestions.
I. Investing, Rightly Understood
Investing defined: putting money into an enterprise now because it will return you a stream of cash flows going forward; a strong basis for expecting those cash flows to actually materialize.
II. Chasing Performance
Selecting and switching investment funds based on recent performance will likely have you zig when you should zag, lowering your returns. Choose funds that use sound, proven investment principles and techniques and that place your interests ahead of their own. Stick with them.
III. Index Investing: Some Positives and an Inherent Flaw
Index (or passive) investing is low cost and may help you stick to a plan. But, as trend-followers, index funds suffer from over-paying for companies, which diminishes returns over time.
IV. A Sensible Approach
Critical concepts in successful stock investing: looking for companies that are profitable and stable, buying them with a margin of safety. The common sense source of higher returns.
V. An Evidence-Based Approach
Empirical evidence indicates return premiums for value and profitability factors, as well as small cap companies.
VI. Diversification without Complication
Your funds should each have many, many individual companies. Your overall portfolio should have a mix of stock funds, bond funds and money funds. That’s it.