FINANCIAL CLARITY

AMIDST THE NOISE AND THE NEWS

THE HABITS OF
HIGHLY
SUCCESSFUL
INVESTORS
“The market, like the Lord, helps those who help themselves.
But unlike the Lord, it does not forgive those who know not
what they do.” - Warren Buffett
THE
Ch 1 . Stock markets deliver stellar returns over long periods of
time. Indeed equity returns have handily beaten bonds, gold and hedge
funds. Bonds should be used only for planned liquidity needs and to mute
volatility. Over time their value will be decimated by inflation and values
drop as interest rates move up.
Ch 2 . Asset allocation is the largest determinant of portfolio
returns. Over 90% of returns are determined by the asset classes and
sub-classes you select. A top-down approach to deploying wealth works
best. Portfolio design and monitoring are key.
Ch 3 . Distinguish risk from volatility – and embrace the latter as an
inevitable manifestation of the market pricing mechanism. Risk is a plane
crash. Volatility is a long turbulent flight to a glorious destination.
Ch 4 . “The magic of compound income is frequently offset by the
tyranny of compound costs” – John Bogle, Vanguard Funds Founder.
Few investors truly understand all the layers of fees and costs they incur –
and the impact of income tax.
Ch 5 . Market timing and stock picking overwhelmingly don’t work. The
Wall St Journal Dartboard portfolio routinely beat the stock-pickers - and
indexes typically outperform 80% of active managers over a
decade. Enhanced indexing handily beats traditional indexes. The focus
therefore ought to be on the selection of ETFs and indexes (out of 3000
available) rather than on which stocks to buy.
Ch 6 . Ignore the noise and the news – focus on your goals and
adhere to core principles. Construct a portfolio of liquid, transparent
investments where you understand what they are and why you own them.
Ch 7 . Resist the temptation to react to your impulses – which
will inevitably lead you to do precisely the wrong thing. We are
genetically programmed to crowd when we feel comfortable and flee when
we sense danger. That will cause you to want to invest in equities near the
top – and sell into every panic, and accounts for the fact that most
individuals have poor track records as equity investors.