Lots of people have asked me for a quick tip. It’s a natural reaction people have when they hear that I help people manage their money. After all, if you could find the next 10-bagger before it goes parabolic, you could spin the straw of your savings account into retirement gold. Or so the thinking goes.
But investing isn’t like that. It’s not about getting lucky in the market. When we invest, we put our money to work among economic enterprises where we don’t know the future. That’s an inherently risky undertaking. So many things can go wrong: the economy could fall into recession, gridlock in Washington might shut the government down, fickle consumer tastes can change.
But competent business managers can cope with change and even thrive. And contrary to Dilbert’s vision of the pointy-haired boss, most managers are competent. That’s why IBM has been able to reinvent itself four times during the last four decades. That’s why Apple could create the whole notion of mobile computing. A growing economy means more good things happen than bad things. We just don’t know what we don’t know.
But what we can know is what our own plans and aspirations are. If we understand ourselves—what we need, how much risk we can handle, how soon we need the money—that knowledge will imply certain things about how to invest and what to buy and sell. That’s why investment advice should be tailored to the person receiving it. Not everyone can handle investing in Apple. Not everyone should. Sound investment decisions grow out of a deep understanding of our present and future financial assets, liabilities, income, and expenses. It’s more like accounting than gambling.
So, want a quick investment tip? Make a plan.
Douglas R. Tengdin, CFA
Chief Investment Officer