Wouldn’t it be great if you had a crystal ball that could tell you not only where to invest, but also when?
Unfortunately, one does not exist. However, there are a couple of investing strategies that have repeatedly rewarded investors with higher returns over a long period of time. Many of these strategies are the result of research and findings produced by an exceptionally gifted investing mastermind (and his team of analysts). Benjamin Graham and Warren Buffett are the obvious favorites, in the eyes of most. It is no secret that Mr. Buffett's Value Investing/'Margin of Safety' investing strategy has yielded his investors legendary returns over his career. Investors who stuck with him through the natural ups and downs of his career are very happy and very rich.
So, how do you find a leader with a great investing strategy such as Warren Buffett? What should you look for? First, you look for a track record, proven and audited by a trustworthy independent source. The next challenge is to know how much history is important when assessing the track record. If you rely on too short of a timeframe, you may end up following someone riding a lucky streak that will inevitably run out or, worst, end up on the wrong side of a dangerous bubble (tech stocks, real estate, dare I say...gold?!). The flipside is that if you wait too long to assess the history of returns, you will miss out on the great returns faithful investors of the strategy are enjoying. I propose that a safe and reasonable amount of history is about 10 years and/or at least 2 major market cycles (bull market/bear market, bear market/bull market).
Then, once you find a strategy with at least 10 years of proven results, you must look into it further to understand why it has worked. You want to make sure you “connect” with and understand the strategy on some level before committing yourself to it. You don’t need to understand it backwards and forwards, but you do need to get the general idea, and that idea has to make sense to you.
After you are confident about track record of the strategy (i.e., they have been independently audited) and you connect with the overall principles of the strategy, then you can commit to it, and most importantly, stick to it! This is not always easy. It takes a lot of discipline to weather the inevitable storms that come, but the discipline of following a solid strategy always pays off. As previously stated, since no one has a crystal ball, there will be ups and downs with every investment strategy you come across. But after you've done your due diligence and have made a real connection to strategy, it is always better to stick with it for the long run versus always looking for what’s “hot” right now. The bottom-line is you cannot find any investment strategy without some downside so it is unreasonable to expect to find one (well, they say Mr. Madoff didn't have many downs, but we all know how that story ends.)
Just do not put all of your eggs in one basket and check that the overall strategy you are following still makes sense, every so often (I do so about annually.)
Keep in mind these main benefits of sticking to a proven strategy:
- It takes emotion/speculation out of the equation, reduces likelihood of making a bad decision
-It provides a sense of more control of your money
-You will likely, experience the sustained great returns that attracted you to the strategy in the first place
If you want to see a good example of a solid investing strategy (which I use for my mutual fund investments, such as a 401k), take a few minutes to check out Compass Investors 1.866.54.COMPASS
Feel free to ask me any questions about the investing strategies I like and use.