"You've got to be very careful if you don't know where you are going because you might not get there." -- Yogi Berra Arguably, the investment and asset-allocation processes can hold more weight and are more complex than nearly any other business decision. A host of variables, known and unknown, contribute to the investment alchemy. As well, subtle and unconscious influences and personal biases affect the process, as we all seek the market's metaphorical green jacket (like the one given to Phil Mickelson, this year's winner of the Masters Golf Tournament). What follows are some basic tenets that form my investment consciousness, which are admittedly simple to write about but more difficult to execute. Know Thyself, Work Hard and Don't Get Emotional
- If you don't know yourself, Wall Street is a poor place to find yourself. There is a reason why there was a church on one side of the old New York Stock Exchange building and a cemetery on the other.
- If you enter the hedge fund biz, remember Darwin. It is survival of the fittest, the smartest and the most practical. The hedge fund industry is populated by some of the most obsessive and idiosyncratic practitioners extant, most of whom are highly educated and possessive of a greater than normal cerebellum. Differentiate yourself by your process and by routinely working harder than anyone else (for example, my day routinely starts at 5 a.m.), for as John Maxwell wrote, "Successful and unsuccessful people do not vary greatly in their abilities. They vary in their desires to reach their potential."
- Do not get emotional in making investments, and however eloquent the strategy is, it is the results that count. The ecstasy of getting investment performance right is always eclipsed by the agony of getting it wrong. If you are uncertain or temporarily lack confidence, raise your cash positions.
- If you are a fundamentalist, write a brief synopsis of each investment analysis/conclusion. It will serve to crystallize your investment analysis and is an excellent personal and investment discipline (it is the principle reason why I write "The Edge"). Moreover, an ex-post facto reflection on why one achieved past success or failure is usually illuminating, instructive and often leads to fewer mistakes. After all, as Benjamin Disraeli wrote, "What we have learned from history is that we haven't learned from history."
- If you are a technician, keep all your charts, just as the fundamentalist should write up a summary of each investment. Reflecting on past mistakes and successes is as important to a technician as it is to a fundamentalist.
- A combination of fundamental and technical input is usually a recipe for investment success.
- Regardless of one's modus operandi (fundamental, technical or a combination of both), logic of argument and power of dissection are the two most important ingredients in delivering superior investment returns. Common sense, which is not so common, runs a close third!
- Neither be a Cassandra nor a Sunshine Boy! It is much easier to be critical than to be correct, as financial disasters are always impending according to the ursine crowd. Conversely, the outlook is never as perfect or clear as it is seen by the bullish cabal.
- Within limits, stay independent in view. Above all, remember that equilibrium is rarely observed in the stock market. To quote George Soros, "Participants' perceptions are inherently flawed" (at least to varying degrees).