We fundamentally believe that a systematic approach to investing provides the best chance of experiencing a successful investing journey. Sticking to some key guiding principles – which are grounded in evidence and logic – gives investors a solid foundation on which to build a sensible investment solution.

This short note provides an insight into five of our favourite insights from experienced and accomplished academics and practitioners and explains how these words help us plant our investment philosophical flag in sensible space.

1.    A focus on risk management, rather than chasing performance

‘You don’t find out who’s been swimming naked until the tide goes out.’

Warren Buffet, Berkshire Hathaway 1994 Annual Meeting

The financial media enjoys reporting on top performing fund managers. Humans like exciting stories. Good investing, however, should – to most – seem relatively boring through taking a ‘risk-first’ approach. Ultimately, sensibly considered risks should be rewarded appropriately over time. The risk management process involves deciding which risks one wants to be exposed to in portfolios (such as broad global equity market risk) and which we do not (such as the use of leverage). Managing these risks tightly over time and monitoring them on a regular basis is key.

2.    Be diligent and act rationally, with due patience

‘Activity in investing is almost always in surplus.’

Charles D. Ellis, Winning the Losers Game, 1993

Ensuring any decision made is free from an emotional reaction is a must. Many are prone to making knee-jerk – and sometimes permanently damaging – investment decisions. Taking steps to avoid this is well-advised.

3.    Take part and believe in capital markets

‘You’ve got to talk yourself out of the market portfolio.’

Eugene Fama, Nobel laureate, speaking with The Rational Reminder Podcast, May 2020

Owning a share of companies through investing in capital markets is an effective way for investors to grow their wealth over time. Owning a little bit of everything is not a bad place to start. Luckily for investors these days, one can do so with relative ease through investing in mutual funds. Doing so enables investors to participate in the growth of listed companies from around the world in a diversified manner, avoiding being overly concentrated in a single stock.

4.    Keep costs low

‘In Investing, You Get What You Don’t Pay For.’

John C. Bogle, Founder of The Vanguard Group, February 2005

Cost is by no means the only factor separating better and worse investment solutions, but it is a significant one. Costs can be implicit (e.g. frictional trading costs) or explicit (e.g. fund manager fees). Clearly, any saving made by an investor is retained in the portfolio, rather than being passed off to another party in the process.

5.    Stick to the plan

‘Real-world application of fundamental investment principles produces superior outcomes.’

David F. Swensen, author and former CIO of Yale University endowment, 2005

An investor who can recall their key investment principles stands in good stead to avoid making mistakes. Abiding by some simple guidelines – such as those outlined by the investment mavens in this note – enables investors to employ a robust and repeatable process for managing their wealth.

Helen Learmonth
Director and Financial Planner – WealthFlow
helen.learmonth@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.