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‘Be True To Your School’… Of Thinking

Of course, unlike actual combat, you can always stop the bombardment. Send all those can’t-miss, “We made investors 400% this year” emails directly to spam. Stop looking twelve financial sites. Choose one that is comprehensive and has the information you need to make an intelligent decision and toss the rest.

You do know they only have headlines like “This Man Called the End of the Great Recession. What is He Saying Now?” to get you to click so an advertiser can target you with an even greater barrage, don’t you? Heck, it wasn’t that tough. I called the end in March 2009. The difference is, you can actually look the article up here on SA and see it.

More importantly, who cares? Even a stopped clock is correct twice a day. You need to see if any guru or seer or humble servant is worthy of continued viewing — like for years, not until someone more flashy catches your eye in a week.

The great market philosopher Aaron Rodgers said it best in a different context: ” R-E-L-A-X. Relax. We’re going to be OK.”

Most people approach the art of investing from the wrong starting point. They read a well-written article on a web site about company x or hear some convincing talking head on TV touting his single best stock idea for the coming year and they rush right out and buy it. Doing this often enough makes them believe they are creating a portfolio.

This is not a portfolio. It increasingly becomes a grab bag, a hodgepodge of conflicting ideas from different sources who are too often “talking their book.” (This means they already bought the security and now need a few million readers or listeners to rush out and push the price higher.)

Remember, fine writing or convincing gravitas on camera does not mean the ideas are sound. A well thought out plan that acknowledges your personal temperament, risk profile and time you really want to spend studying the markets, and a willingness to execute that plan without being distracted by all the noise, is what will ensure long term investment success.

To that end, may I suggest that buying something from reading an ad or listening to a talking head is the wrong place to begin.

Here are the most important questions to answer in the order they should be answered:

1. The first question to ask is: is this the right time to invest in anything? This goes for everything you might choose to invest in – stocks, bonds, options, mutual funds, houses, collector cars, stamps, coins, comic books, or anything else. If any of these items are of interest to you but they have already appreciated into the stratosphere, the answer is probably, “No, this is not the right time to invest.”

2. If that is the case, then ask, “Is this instead a better time to buy a different investment?” If stocks are ridiculously overpriced right now, maybe bonds are a better choice. Or if “most” stocks are not timely right now but one particular sector is amazingly depressed, then seek companies in that sector.

3. “Maybe so, but will I be comfortable holding these positions?” is the next question. No matter how loudly a famous investing guru pounds the table for a particular stock, if it doesn’t fit your temperament, or if it requires constant attention when your goal is to devote as little time as possible consistent with the results you want, pass on that recommendation.

4. Now, and only now, you will want to do your due diligence on the investment itself, be it a stock, mutual fund, collector car or something else. Not everything will pass your analysis when you delve into it but at least you won’t be wasting your time looking at every single idea you are bombarded with every day.

Following the usual scattershot technique leaves you with a portfolio that looks like Monday morning at Lake Tahoe after all the tourists have gone home. (All that is missing are the bears.) Of course, if your portfolio looks like this the market bear will probably eat you alive.

Deplorable conditions at T.E.H. Realty property Southwest Crossing Apartments

Source: St. Louis Post-Dispatch

The biggest problem I see with investors is that they select a style of investing that they are comfortable with then, thanks to that constant bombardment of “ideas,” slowly begin their style drift into something that looks like the above.

If you have ever asked yourself, “Why the heck did I buy these two stocks?” you know what I am saying. If you cannot immediately, in a sentence or two, describe why you own a particular company’s shares and what event or events would cause you to sell or buy more, then you have drifted into something like the above.

Be true to your school. Ask the above questions before buying something and keep asking them as the weeks turn into months. Find a style of investing *you* are comfortable with, then stick with it.

As Charlie Munger once wrote,

Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. [Emphasis mine] If losses are going to make you miserable – and some losses are inevitable – you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.”

Find a style that fits who you are as an investor. Now stop deviating from it! Be true to your school. More importantly, be true to yourself.

Good investing,

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Unless you are a client of Stanford Wealth Management, I do not know your personal financial situation. Therefore, I offer my opinions above for your due diligence and not as advice to buy or sell specific securities.

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