The Playbook for Successful Investing
There’s no formula for “winning” the stock market—if there were, we’d all be using it. But over the years I’ve learned five valuable lessons that I use to make game plans for my clients. Together, I believe they create a playbook that anyone can use to help become successful investors.
Lesson 1: Successful investing is about managing risks, not returns.
Return opportunities will present themselves if we are patient, open to them and willing to respond when they arise. Getting too much invested in one asset class elevates risk—stay diversified. During poor market conditions there is a tendency to be “under-invested” or too conservative. If you avoid stocks in favor of more conservative investment positions, you may miss a potential upturn when it comes.
Lesson 2: The biggest risk we face is our own emotions.
Making an emotional decision at the wrong time can be very damaging to your net worth. Fear can lead you to sell low, and greed can cause you to buy high. Also, emotions can lead us to not take profits on our winners—“It’s going up forever,” or hang onto our losing positions too long—“It will come back.”
Lesson 3: Don’t believe everything you hear or read.
We are bombarded with information and opinions, and it is getting harder to pick out what is valuable and relevant and what isn’t. Some very successful investment strategies recommend the exact opposite of whatever you’re reading or hearing in the news.
Lesson 4: Investing is a counter-intuitive art.
Warren Buffett has said the core of his investment philosophy is to buy when others are fearful and to sell when others are greedy. If we look at charts showing the performance of various assets over time, often what has done best can transition to a period of underperformance. Conversely, the asset class at the bottom of the performance stack can often be a top performer in following years.
Lesson 5: Risk structure needs to match time horizon.
In general, this means having money needed in shorter time frames in more conservative investments, and having more volatile assets dedicated to longer term purposes.
For more information about each of these lessons, listen to the podcast below.
Can't see the podcast player? Click here.
You can reach Scott at 615-620-1217 or by e-mail at scott.mcpherson@pnfp.com.
* The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Scott McPherson and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Diversification does not assure a profit or protect against a loss. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Inclusion of this index is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.
