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What is Your Investment Philosophy?


 

If you have money invested in the stock market, you definitely have an Investment Philosophy. There are only two.

 

               You believe that free markets are efficient and therefore, you can achieve market returns.

 

                              Or

 

               You believe markets are inefficient and that you can consistently beat market returns.

 

There are lots of people who believe markets are not efficient and the price of a stock is often incorrect. As a result, they or someone or some group can ferret out those incorrect prices and make money doing so. I call this the optimistic approach to having an Investment Philosophy.

 

Those who believe that markets are efficient, accept the fact that the current stock price represents the best estimate of the worth of that stock. I call this the academic approach to having an Investment Philosophy.

 

The academic approach believes that all the known and knowable information about a company is factored into the price of the stock and only new and unknown information can change the price.

 

The optimistic approach believes they can find information about the company that no one else knows.

 

If you believe in the academic approach, spend your effort designing a globally diversified portfolio of equities and rebalance it periodically back to the original targets you set based on your risk tolerance.

 

If you believe in the optimistic approach,you should read everything you can get your hands on about the companies you want to invest in, read every financial paper you can, watch CNBC, Fox Business and follow Jimmy Cramer religiously and maybe consult with your brother-in-law.

 

What is your investment philosophy?

 

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Comment   |  4 years, 11 months ago from Snyderville, UT