Ten Commandments for Investors (Part 3)

The Third Commandment is not to take the name of the Lord in vain. How does this apply to investors?

The Third Commandment is often viewed as a proscription against cursing and profanity, and it certainly is that. In modern culture, certain words and phrases are off limits. Even more significant to the ancient Hebrews, however, was the actual name of their God. For in the ancient world, to name something was to have power over that thing—thus the Third Commandment was an exhortation to be humble in the presence of the deity. They didn’t have power over God; God had power over them.

In the same way, investors need to be humble in their approach to the markets. There are all kinds of schemes and strategies that supposedly exploit the markets’ inefficiencies, and on paper these look reasonable. After all, the entire premise of active portfolio management is that markets can act irrationally, and rational investors can profit when then analyze and interact with irrational markets.

But beating the market is hard; there are millions of other rational investors looking for similar opportunities. Prices then incorporate their collective opinion—a sort of “hive mind” reflecting investors’ views of current financial and economic reality as they apply to thousands of stocks and bonds. And while individuals can profit by going against this consensus, they need to be circumspect and careful as they do.

Thus, the Third Commandment, properly understood, enjoins us to respect the market. And respect is always a good thing.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2014-09-09T15:48:37+00:00 June 12th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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