The Importance of Having Investment Principles
One key to investing successfully is having time-tested investment principles in place that you follow consistently over time. Financial success and independence look different for everyone. However, proven investment principles and wealth building strategies can be the same for you as they would be for Bill Gates or Warren Buffet.
A principle is a:
1)Fundamental truth or proposition that serves as the foundation for a system of beliefs or behaviors and/or for a chain of reasoning.
2)Rule or belief governing one’s own personal behavior.
Investment principles seem to be quoted everywhere. They are usually at the front (or near the front) of most marketing brochures and/or websites. This is because they are extremely, extremely important. I contend that one of the most important questions you can ask a financial advisor you are considering working with is this: “What are your investment principles and please explain them to me.”
One of my most memorable ‘ah-ha’ moments on this subject came when I was in San Francisco in the mid 1990s. I was a participant in an important meeting that Charles Schwab & Co. was hosting. Let me share the moment. Charles Schwab had a few hundred branches across the country. This was a three day annual meeting for Branch Managers in San Francisco. We had just begun giving investment advice to clients a few years earlier. One of the questions we were struggling with answering in this new world of providing this advice was – “What can we say and what should we not say to clients to help them with their investment decisions?”
Sound like an easy question to answer? Trust me it wasn’t. We needed to be able to provide a guideline that was broad enough to help clients and narrow enough to ensure we could train all the advisors so they could give good actionable advice to clients across the country. Therefore the sessions addressing this subject were very lively. Charles Schwab was actively running the company at the time and seemed to sense this, because during one of the Q&A sessions he shared a list of seven “Rules of Thumb for Investing”. Basically they were investment principles. The seven Rules of Thumb eventually became the Ten low cost investment strategies Orlando Principles that Charles Schwab & Co. uses today. Some of these principles, along with a few I’ve added myself, have guided my investment decisions ever since.
I have listed mine below (with a few others investment principles) to give you some specific examples. I have come across hundreds of such principles in my career, and these are a few of the better ones I’ve encountered. I want to make it clear though, you need to have your own four or five principles that guide your investment decisions. And you need to believe them to your core!
There is not a secret book or an all-knowing place to go and find investment principles. You will also find that these principles must be used in combination. Success won’t come from using just one.
Again, four or five personal investment principles used in combination and consistently over time will greatly improve your chances of becoming financial successful. They will become your ‘lighthouse in the storm’ and trust me, there will be storms. Investment principles are why some people seem to move from one market crisis to the next experiencing minimal stress.
Comments