We recently welcomed a new client to the Apollo family. He approached us after years as a DIY investor.
During the get to know you phase he told us one of his biggest problems is the volume of information, not knowing what to believe, acting on (oftentimes competing) advice and ending up getting nowhere.
We suggested some light reading.
He took to the book like a dog to water. “Tell me more,” he said. And so we pointed him to these 36 obvious investment truths.
After reading he said, “That’s great. Can you break ‘em down for me? Some plain language maybe? Something quick and easy to remember?”
We responded by adding a quick and dirty “tough love” comment to each. He said, “Fantastic! You should share this with all of your clients.”
And so at the suggestion of the newest Apollo client here are 36 obvious investment truths and, in red, some tough love Apollo commentary:
- If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market. (Fear of missing out is a powerful force.)
- If you want to earn higher returns you’re going to have to take more risk. (There’s no such thing as a free lunch.)
- If you want more stability you’re going to have to accept lower returns. (See #2.)
- Any investment strategy with high expected returns should come with the expectation of losses. (You’re not entitled to a positive rate of return.)
- The stock market goes up and down. (Trees don’t grow to the sky.)
- If you want to hedge against stock market risk the easiest thing to do is hold more cash. ($1 = $1 no matter the ROR of the S&P.)
- Risk can change shape or form but it never really goes away. (Even the risk-free Treasury carries risk.)
- There’s no such thing as a perfect portfolio, asset allocation or investment strategy. (Strive for sufficient. Seeking perfection will drive you mad.)
- No investor is right all the time. (Mistakes are learning opportunities.)
- No investment strategy can outperform at all times. (It’s a marathon, not a sprint.)
- Almost any investor can outperform for a short period of time. (Even stupid people can look smart from time to time.)
- Size is the enemy of outperformance. (Your 3 shares of Amazon aren’t going to make you rich. Take sizable/meaningful positions.)
- Brilliance doesn’t always translate into better investment results. (There’s knowing and then there’s doing.)
- “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets. (The future is unborn.)
- Watching your friends get rich makes it difficult to stick with a sound investment plan. (Your friends aren’t paying your bills. They don’t have your risk tolerance, cash flow, asset allocation, etc. Let them worry about themselves. As the kids like to say, “You do you.”)
- If you invest in index funds you cannot outperform the market. (Aristotle famously wrote, “A is A.” Investing in something tracking the market gets you a market return – nothing more.)
- If you invest in active funds there’s a high probability you will underperform index funds. (We humans are fallible.)
- If you are a buy and hold investor you will take part in all of the gains but you also take part in all of the losses. (That’s why you buy, monitor and tweak. Wholesale changes never make sense.)
- For buy and hold to truly work you have to do both when markets are falling. (Doing nothing is often better than doing something for the sake of doing something.)
- Proper diversification means always having to say you’re sorry about part of your portfolio. (If everything you own is simultaneously increasing in value you aren’t diversified.)
- Day trading is hard. (Steer clear of the 2 am infomercial about someone’s “system.”)
- Outperforming the market is hard but that doesn’t mean it’s impossible. (Inefficiencies exist because short-sighted, emotional humans do stupid things.)
- There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again. (See #14.)
- Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions. (Hindsight is 20/20.)
- Compound interest is amazing but it takes a really long time to work. (Sit back and watch the magic happen.)
- Investing based on what every billionaire hedge fund manager says is a great way to drive yourself insane. (By the time you hear about an opportunity it’s already been exploited.)
- It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming. (Don’t beat yourself up trying to figure out which one’s true.)
- Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice. (We are our own worst enemies. We seek out exciting and sexy. Meanwhile, boring wins.)
- The best investment process is the one that fits your personality enough to allow you to see it through any market environment. (If you can’t stick with it through good and bad times then it isn’t for you in the first place.)
- Successful investing is more about behavior and temperament than IQ or education. (See #28.)
- Stock-picking is more fun but asset allocation will have more to do with your overall performance. (See #28.)
- Don’t be surprised when we have bear markets or recessions. Everything is cyclical. (Run for the exits when the “this time is different” crowd is in the room.)
- You are not Warren Buffett. (But you can learn from him. Lots of good info in the annual Berkshire Hathaway shareholder letter.)
- The market doesn’t care how you feel about a stock or what price you paid for it. (You are not entitled to a profit.)
- The market doesn’t owe you high returns just because you need them. (Put on your big boy pants.)
- Predicting the future is hard. (It’s actually really easy as long as you don’t care about accuracy or the probability thereof.)
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