Your Investing Philosophy?

Let’s take a moment this week to address a subject all of us know, but few of us examine regularly… your investing philosophy. A quote from Oaktree Capital CEO Howard Marks will help us set the tone:

If your portfolio looks like everyone else’s, you may do well, or you may do poorly, but you can’t do different.

— Howard Marks

Think about that and ask yourself, “Am I going to be happy getting the results everyone else is getting… good or bad?” This is an important question to have answered before choosing how you are going to invest.

Not sure? How about this example: If it turns out you are temporarily losing money in your investment plan, will you feel better if you know that everyone else is losing money too? Most of us, if we think about it, would not care about what everyone else is experiencing… we just don’t like losing money!

Let’s ask it a different way: Would you rather be right or wrong based on what is happening with the crowd, or based on your own decisions that you made with what you considered to be the best information at the time? The answer may seem obvious, but investors should really be sober about their philosophy. If going out on a limb and doing something different from the what everyone else is doing is something that genuinely makes you uncomfortable, it’s good to know that about yourself up front.

Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron. Thus such ideas are uncomfortable; non-conformists don’t enjoy the warmth that comes with being at the center of the herd. Further, unconventional ideas often appear imprudent. This popular definition of ‘prudent’ – especially in the investment world – is often twisted into doing what everyone else does.

— Howard Marks

As an investor there WILL be times when it feels lonely and uncomfortable when you are not doing what everyone else is doing. If you’ve decided that you prefer non-consensus investing, can you embrace it?

Here is an important conclusion:

1. Have an investing philosophy
2. Know your risk tolerance
3. Understand your risk/reward

Categorized in: Blog

This post was written by Conscient Capital