Photo: S Klimkin. Source: Morguefile
Investment advice works best when people treat their investments like a business. If you are investing, you’re really acquiring future sources of cash. Some investments—like bonds—come with contractual payments and a final date. Others—like new companies—come with a vague promise to begin returning cash to shareholders when the business matures. All of them depend on how the economy does.
If you were running a restaurant, you wouldn’t tune in to Duck Dynasty for advice. There might be some general ideas, like marketing or planning, that are universal enough where you might gain some insight. But you want advice designed for you, that helps you with your specific issues. The same holds true for investment advice. It should be tailored to fit your particular situation.
Photo: M Connors. Source: Morguefile
Be aware of the prior assumptions of anyone who gives you advice—their incentives, background, temperament, and experience. Everyone has assumptions built into their outlook. I started working as an institutional investor in the late ‘80s and early ‘90s, when stock and bond prices were volatile and unpredictable, but generally trended higher. So I tend to emphasize risk management and diversification. But any advice can be dangerous, and sometimes there are no good options. Someone who freely offers an opinion about fire may not have been burned yet. Be careful.
Above all, don’t be afraid to ask hard questions. Good opinions take a long time to form. They should be grounded in economic and financial reality, and, once implemented, be fairly boring. Good investing is like good gardening—it takes time to bear fruit. But it’s worth the wait.
Douglas R. Tengdin, CFA
Chief Investment Officer