Nothing new under the sun
Fads will always come and go in markets, especially during bull markets.
The problem with many such strategies is that they only work when the market is going up, but then all hell breaks loose when the market crashes.
‘Only when the tide is going out do we found out who is swimming naked’ as one famous investor sagely put it.
In other cycles markets drift lower for years or even decades, leading many to similarly underwhelming results.
When markets are rising almost anything seems to work, and therefore comparatively little rigour is applied by most investors to their process.
Timeless investment principles, on the other hand, can be applied to any asset asset class at any time, whether you’re investing today, or ten years from now, or even a thousand years from now.
We’ve brought together a timeless investment strategy which you can use at any time, to continue to compounding your net worth at wealth-producing rates of return.
The 8 timeless principles
It’s important to adopt a systematic approach to investing, otherwise everything is prone to collapsing in a heap at the first sign of distress.
We use the principles to develop a systematic approach, which ensures that you stay on the right track and avoid becoming tempted to drift.
The simple big idea is to use our 4 thought principles (systematic investing, market cycles, personality, and the risk hierarchy) to think about investments before you invest.
Here, then, are our 8 timeless investment principles that you can apply at any time, in any markets, to any asset class (there are already posts on each of these principles – follow the links below for a little more colour):
4 thought principles
(i) Systematic investing – if you don’t have a systematic approach to investing, then on a long enough timeline eventually something will not go as planned and you will fail. Plan accordingly;
(ii) Personality – there are 9 different personality types, and we all have our own motivations, strengths and weaknesses. Understanding your personality type and dominant beliefs will help you to invest with less emotion and more rationally;
(iii) Market cycles/mean reversion – market sentiment swings higher and lower over time, but over time valuations have tended to revert to an average or mean level; and
(iv) Risk hierarchy – some investments (e.g. individual companies) may entail a greater risk of permanent loss of capital than others (e.g. an all-World ETF that holds more than 1,500 stocks).
4 action principles
(v) Asset allocation – consider investments in uncorrelated assets. For example, cash and stocks are uncorrelated, so you might split your capital between these assets;
(vi) Buy low/sell high – exactly what it says on the tin! Buying low and selling high is a timeless strategy for all markets and all asset classes;
(vii) Diversification – there are several ways to diversify, including across multiple investments, by investing in products that are themselves diversified, and across time by carefully staging your entry to investments; and
(viii) Rebalancing – a critical part of any investor’s armoury, to ensure that you are never over-exposed to any single investment position. Rebalancing helps to manage your risk and can improve your returns over time.
Applying the principles
Individually, each of the 8 timeless principles is coherent and very logical.
But their true power becomes apparent when they’re all applied together to give you a robust framework for making money consistently in all markets (and especially when markets are going awry).
Applied properly these 8 principles may lead you to the holy grail of investing: higher returns with lower risk.
To find out more about our coaching programs see here.