Many investors have no investment philosophy, and the same can be said about me when I first started out. I adopted strategies that seem to work for other investors and abandon them when they do not. It took me a while to realize I needed an investment philosophy. Why?
The answer was simple. In the absence of an investment philosophy, I change from strategy to strategy based upon someone’s opinions or apparent success. These lead to negative consequences for my portfolio.
As I switch from strategy to strategy, I must change my portfolio resulting in lopsided allocation as well as high transactional costs and taxes. In addition, it lacks a core set of beliefs and I was an easy prey for charlatans and pretenders, claiming to have the magical strategy that beats the market. I realised while there may be strategies that do work for them, they were not appropriate for me, considering my objectives, risk aversion and personal characteristics.
With a strong sense of core beliefs, I do have better control over my purpose now. Not only I no longer take strategies that do not fit my core beliefs about market, I tailor my investment strategies to my needs. In this matter, I can get much more of a big picture view of what is different across strategies and understand what they have in common.
So, if you are an investor, what is your investment philosophy?