3 Simple Pieces of Advice I’ve Received About Investing

This week I had lunch with my first boss who gave me my start in the investment business. I learned a lot from him in my first few years and it’s amazing how often I go back to some of the basic principles he taught me.

This got me thinking about some of the very simple, yet worthwhile pieces of advice about investing that I’ve received over the years from past bosses or colleagues. Here are three that came to mind:

1. “Always have a willingness to say no. You don’t have to have an opinion about everything or a position in everything.” Is gold bottoming here? Is it time to buy industrials? Should we get out of European stocks here? Should we extend our bond duration? It’s amazing the amount of potential options investors have these days in terms of markets, asset classes, sectors and products. Every day there’s a seemingly endless amount of investment moves you could be making (or should be making according to some). I’ve learned that it’s okay to allow opportunities to pass if they don’t make sense for my time horizon or my comfort level. I don’t need to try to pick every bottom, get in on every trend or miss every 5% correction. Most of the goings-on in the markets fall under the ‘interesting’ category and not the ‘actionable’ one.

2. “Don’t waste your time trying to game interest rates on a consistent basis. There are far too many variables to consider. You’re not just trying to outguess the market; you also have to worry about governments, central banks, inflation expectations, economic growth, supply & demand…” I’m not saying it’s impossible for certain people to predict interest rates. But I’ve seen far too many economists, central bankers, fund managers, advisors, consultants and individual investors fail at it to know it’s not something that I’m particularly well suited for. It’s not that I don’t pay attention to rates. Of course I do. But I’ve always been on the side of allocating assets in my career, not making binary macro calls about the direction of rates. Playing the catalyst game is no joke. Some people can do this well. Most who try will fail. It’s not something I find adds much value to my process.

3. “Most of the stuff you learn now won’t have any meaning for a number of years. And many of the best lessons you’ll get from the markets are those things you’ll eventually un-learn.” I even reminded my old boss of this one this week because it’s so true how much stuff I’ve learned that didn’t really kick in until a few years down the road. I told him I couldn’t believe how much clearer some of the things he taught me have become after gaining more experience and knowledge about the way things work in the finance industry. Some things don’t have meaning until you’re able to provide situational context around them through your experiences.

The un-learning process is one of the things I wish I would have figured out sooner. This means having a willingness to let go of past thoughts and ideas when new evidence or experience comes to light. It means figuring out how to be intellectually honest with yourself about how things work and never becoming too overconfident in your abilities.

The whole point of exerience to me is figuring out what doesn’t work. It’s an under-rated skill to be able to sift through all of the noise, jargon, products, sales tactics, different markets and investment strategies and very quickly come to the realization about what to immediately ignore. Focusing on what you control sounds like very boilerplate advice, but it works. It’s also not always so easy to pull off.

Further Reading:
Observations From a Decade in the Investment Business
Un-Learning From Peter Bernstein

Here’s the stuff I’ve been reading this week:

• The sustainable active investing framework (Alpha Architect)
• Eddy Elfenbein: “The market is controlled by the market.” (Crossing Wall Street)
• The worst question of all (Bason)
• Mark Dow: “Smart guys are the most dangerous.” (Behavioral Macro)
• Ritholtz waxes philosophical on the importance of understanding time (Big Picture)
• The great divide between traders and investors (Dash of Insight)
• The best portfolio is a homesick portfolio (Rodrigo Gordillo)
• Working more than 40-50 hours a week isn’t a great idea (Dustin Moskovitz)
• Josh Brown with some perspective on MLPs (Reformed Broker)
• Start to worry when you think you have it all figured out (Motley Fool)
• Louis CK on personal finance (Boomer and Echo)
• ICYMI MarketWatch wrote a very nice profile on yours truly (MarketWatch)

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My new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, is out now.