The most successful investors develop an investment philosophy to guide their decisions. Some aspects should reflect universal best practices, while others should have a more personal spin. Positive results happen when you adopt strong universal principals, examine your preferences and stick to them.
What are the key universal elements that you should adopt as part of your investment philosophy? Let’s start with a basic question: Why are you investing in the markets? A common response would be to have a positive return on investment. So, the first piece of any investment philosophy should be: “I am investing my funds in this investment because I think it can make a good return.” The first key is conviction.
The second universal key relates to the question: Why do you believe that this particular investment will give you a return? Look at Warren Buffet, who is famous for investing only in companies and businesses that he understands. Not understanding how an investment proposes to give you a return is a big mistake. The second key is understanding.
This leads us to the third universal key: having the information necessary to monitor your investments to see if your thesis proves to be correct. You should only invest with managers who give detailed disclosure. The third universal key is transparency.
Next, you need to take your fundamental personal inclinations and preferences into account. If you like bargains and hate to overpay, you are probably going to be happier following the value investing path. If you love looking for the next great success, then growth investing will be more appealing to you.
Adding to the three fundamental keys of investment aforementioned, there are more principles and keys which you could follow to get your investment game strong.
Overall, your investment philosophy should reflect three universal investment practices: Conviction, Understanding and Transparency, which will help you cut through the noise in the market. You should then consider your style, risk tolerance, global preferences, time and values as you decide where to focus your energy.
Armed with this personalized investment philosophy, you can now map out a strategy that will lead you to a more satisfying experience in investing.