Every client has an IPS – Investment Policy Statement – that is reviewed annually. It contains overall objectives, approximate net worth, emergency fund requirements, assets under management, anticipated time horizon, an overall portfolio objective, risk tolerance, investment vehicles to be considered, tactical asset management, cost control considerations, benchmarks for portfolio evaluation, tax considerations and other pertinent information, and monitoring and reporting frequency.
If you have money invested with a broker or investmenr advisor and do not have an IPS, find yourself another advisor. I cannot make this point strongly enough.
Investment Policy Statements are sent out every year for review. Things change, and changes are reflected in updates.
Every investment purchase is made within the context of the client’s objectives as stated in the IPS. There are no exceptions to this unless discussed beforehand with the client.
The US stock market is the sole investment vehicle. Some individual stocks trading with P/E ratios less than their 5 year average are held, stock and bond ETFs, BDCs, and cash in money market accounts are held. The amount of cash held in accounts will range from 5% to 50%, depending on a client’s risk tolerance and market conditions. Holding cash is a critical part of maintaining a margin of safety.
In trading, I embrace a ruthless approach to eliminating sunk costs. Many investors are reluctant to sell a stock at a loss, possibly because they are unwilling to admit that they may have, in their opinion at least, made a mistake when they bought it. I take the opposite approach – if I later believe I have made a mistake by buying a stock at the price I paid, I will sell it and never look back. I don’t strive to be a great investor; my goal is to make more good decisions over time than poor decisions.
I strive to avoid what I call “the tyranny of numbers”. Numbers in math and science have specific meaning; numbers in a financial spreadsheet sometimes take on a life of their own when they are better viewed as guideposts. A number accurate to two decimal places can be a misleading number that has the superficial appearance of credibility.
I consider identifying and acknowledging “I don’t know what I don’t know” a strength, not a weakness.
When judging my performance as an investment manager, I track not only the things I did, but also the things I didn’t do. This is necessary to maintain a balanced perspective as we all tend to forget that sometimes actions we did not take have greater impact – positive or negative – than actions we did take.
I ignore 99% of the nonsense published in the financial media and focus instead on the handful of people whose opinions have merit. It can take years to identify this small group of people.