5 back-to-the-basics investing truths

Did you ever have an experience where  you take a class from an expert, and you’re surprised at how much the  initial focus there is on the basics?

The golf coach who insists that you don’t grip the club too tightly.

The artist who insists that you know the color wheel, and which colors are complementary.

The musician who insists that you be able to play the major and minor scales.

As students, we all want to just get out their and start hitting golf  balls, or start painting the landscape or start improvising that piano  solo.
Yet the reason that these teachers and  coaches have such a unerring focus on the basics, is that without  mastering the basics, they know that it is very unlikely we will  succeed. 

The longer I have been in the investment management industry, the more I  see the same dynamics when it comes to investors. And in this context, I  offer the following 5 “back-to-basics” of investing.
If your approach to investing is  incongruous with any of the following, you’re almost certainly not doing  as well as you could. And it may be time to go back to the basics…
1. Embrace market pricing
The market is an effective information-processing machine. Each day, the  world equity markets process billions of dollars in trades between  buyers and sellers, and the real-time information they bring helps set  prices.  There are so many participants, and so much money involved,  this is an incredibly efficient pricing machine.  Trust that it works.

2. Do Not Try to Outguess The Market

The  market’s pricing power works against those who try to outperform  through stock picking or market timing.  As evidence, only 22% of US  equity mutual funds and 10% of fixed income funds have survived and  outperformed their benchmarks over the past 20 years. 

3. Do Not Chase Past Performance

Some  investors select investments based on their past returns. Yet, past  performance offers no actionable insight into a fund’s future returns.  For example, most mutual funds in the top quartile of previous five-year  returns did not maintain a top‐quartile ranking in the following five  years. 

You’ve heard the phrase “past performance is not indicative of future results,” right? 

It would probably be truer for the stock fund disclaimer to read “…Since  we’ve outperformed over the last 5 years, the odds are close to 5:1  that we’re going to underperform in the next 5 years.”   Think about that.

4. Stay Invested & Let Markets Work For You

The  financial markets have rewarded long-term investors. People expect a  positive return on the capital they supply, and historically, the equity  and bond markets have provided growth of wealth that has more than  offset inflation.  But to get these returns, you have to be IN the  market.  You can’t wait until after Covid.  Or after the election.  Or  after… anything.  Just get in.  And stay in.

5. Ignore The Headlines

Daily  market news and commentary can challenge your investment discipline.   Some messages stir anxiety about the future, while others tempt you to  chase the latest investment fad.  When headlines unsettle you, maintain a  long‑term perspective. Here’s an interesting BusinessWeek cover from  1979.  They nailed it, right?

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Information is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products, or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this post (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of Tim Corriero, an Investment Adviser Representative of Gemmer Asset Management LLC (“GAM”) and should not be regarded as the views of GAM, or a description of advisory services provided by GAM or performance returns of any GAM client.  References to securities or market-related performance data are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.  Any mention of a specific law firm herein does not constitute an endorsement, recommendation, or favoring by such firm.

Please see disclosures here.

Tim Corriero, J.D, CFP ©

Tim Corriero is an attorney, a Certified Financial Planner ® and founder of Juris Wealth, a financial advisory business for lawyers.


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