Thoughts on Investing

More Thoughts on Investing from David E Hultstrom

• Markets are probably efficient.  To the extent they aren’t, you won’t be the one that beats them.

• Diversification is the only free lunch – but it works better when markets are going up than when they are going down.

• If everything in the portfolio is going up, you aren’t diversified.

• Focus on total return, not yield.

• Beware excess kurtosis and negative skewness – particularly in combination.

• As Warren Buffett said, “Be fearful when others are greedy, and be greedy when others are fearful.”

• Don’t change investment strategy when scared or euphoric.  Wanting to change your strategy is an early warning sign you are about to do something stupid.

• Over-communicate with clients – particularly in times of market stress.

• Setting appropriate expectations is one of your most important functions.

• Just because “everyone” is doing it doesn’t make it right.  This applies to investment fads