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Part 1: The Investment Axioms 1-5

Seth Jentner01/02/2014

Here we are in January. This is the time of year when people like to make New Year’s resolutions. It’s also when financial pundits make their investment predictions for the New Year. Even though no one is able to reliably predict the markets in advance, people still look for that “silver bullet” of investment insight to help them avoid losses while they attempt to beat the market.

More than a decade ago, retired author and editor, Marshall Loeb, of Time, Fortune and Money magazines published his Ten Investment Axioms to Live By.

I believe these ten investment axioms are as true today as they were when originally penned.  Let’s review the first five.

  1. There is no such thing as short-term investing. The term short-term investing is an oxymoron. Put bluntly, a short-term financial focus is speculation, not investing.
  2. Valuation still matters. If you believe “it’s different this time,” you’re wrong. When valuations are above historic levels, there’s good reason to be concerned. Good companies may remain good companies, but they may not continue to be good stocks. When valuations are below historic levels, there may be some excellent long-term buying opportunities.
  3. Asset allocation is a diversification strategy that works. It doesn’t offer a guarantee against short-term market losses, but it’s an effective investment risk-management tool. Sector concentration, no matter how attractive the sector appears, no matter how compelling the arguments, is still speculation.
  4. There’s no opportunity for return without some risk. If you don’t see or understand the risk, keep looking, it’s there. Once you find it and understand it, it may be acceptable. But until you identify the risks, they are unacceptable.
  5. Most dollars flow into high-performing investments after the performance has occurred. Chasing last year’s performance is a mistake. A disciplined investment plan is critical if you want to avoid making this mistake.

Make a resolution to adhere to these words of wisdom as you work with your financial advisor in 2014.

Check in next Tuesday to learn about axioms 6-10.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.