When I tell someone that I’ve been investing professionally for over 30 years, they often ask me some variation of the question “what should I invest in?”
This question indicates that the person believes in what I call The Guru Myth. This myth is based on the erroneous assumption that a ‘professional’ investor
knows better than you what investments are suitable for you. But there are no universally suitable investments, and there is no such thing as an investment Guru.
The question also reveals that some people think of investments as being either inherently good or inherently bad. Investments are neither. They are either suitable
or not suitable, depending on your specific circumstances. They are more risky or less risky, high yield or low yield, volatile or not volatile, etc. Each investment
has a variety of characteristics that must be considered in the context of the investor’s goals, time frame, and experience. We’ll deal with this in more detail later.
First, let’s get some definitions established. Investing is the art of evaluating probabilities and making decisions based on uncertain outcomes. To be successful at
investing, you need three things: skill, temperament, and discipline. The skills can be either innate or learned, and they do not have to be highly refined. The
temperament includes such characteristics as humility, objectivity, and adaptability. And the discipline is used for creating, implementing, and consistently
following a comprehensive plan. Without all three of these qualities, the overwhelming majority of investors are doomed to mediocre and inconsistent results.
Our society places high value on independence and self-reliance. In most areas of life, these are admirable qualities to have, and they serve us well by saving us
money. But investing is ill-suited to do-it-yourselfers. To start with, the competition for profit is brutal. You are attempting to out-think and out-maneuver some
of the best and brightest minds in the world. You are going up against professionals who have the time, resources, and connections that enable them to stay several
steps ahead of you. In one sense it seems highly conceited to think that an individual investor with a few hundred thousand dollars to invest could survive, much less
succeed, going up against the so-called ‘smart money.’
I am not advocating that you will need to hire a money manager and pay high fees for advice and service in order to be successful. There is a middle way between this
and the ‘DIY’ approach. This path involves three steps: designing your personal investment plan, reviewing the plan periodically, and making modifications to it when
it is necessary. This is not nearly as easy as it may sound. I suggest seeking outside help from a fee-based professional coach or advisor, and making sure that
there are periodic follow-up sessions to help ensure that you stay on track. The vast majority of financial and investment plans that are purchased from professionals
are either not implemented, or never reviewed after the initial trades are completed. In order for a plan to work for you, it must become a ‘living’ document. That
means you have to use it regulargly, update it periodically, and integrate it into your financial life just like you do with your banking, insurance, and real estate
issues. A living document keeps you on track and focused on the necessary steps you need to take in order to make progress.