Most providers of investment guidance want you to believe that they have some kind of mysterious secret, a magic key that unlocks a hidden universe of market-beating performance. Maybe it’s proprietary company research, access to exclusive hedge funds, or the decoder ring for price/volume charts. The complexity of these secrets may make them seem important and compelling, but we know that the real secrets to better investing are not secrets at all.
Conventional wisdom isn’t always so wise
This storyline of secret knowledge has been the accepted marketing mantra in financial services for generations. Remember this version – “My broker’s EF Hutton and EF Hutton says…” And then the whole room goes silent waiting to hear the message from this expert of experts. It’s a classic campaign and we’ve seen hundreds of variations on this theme over the years.
But that’s slowly changing. Recently a few voices of reason, including Warren Buffett, David Swensen, Jack Bogle, Burton Malkiel, and Eugene Fama, have made it clear that the real keys to sound investing are the absolute opposite of secrets. They are straightforward, evidence-based principles that require no proprietary knowledge or special access. For instance:
- Start early – Put away money over your entire career to maximize your opportunity for growth.
- Diversify – Spread your assets across many kinds of investments to reduce risk.
- Control costs – Buy index funds or ETFs with low expense ratios so you keep more of what you earn.
- Stay invested – Don’t try to jump in and out of the market; let long-term compounding work for you.
- Accept the peaks and valleys – Understand that discouraging short-term dips in returns are the price of admission for access to long-term appreciation.
Simple, but not easy
These principles sound too simple to matter, but decades of empirical research show how important they are.
It turns out that smart investing is a lot like losing weight – simple to understand, but often difficult to accomplish in real life. We all know that slimming down is no trickier than burning more calories than we consume, but still it can be a big struggle when faced with stress, temptation or bad influences.
Likewise, you may fully understand the investment non-secrets described above, but find them difficult to follow when markets are falling hard and fast, pundits are predicting disaster, or you see friends strike it rich on an unknown start-up.
It’s amid these real life distractions where a new breed of investment advisor is proving to be most valuable – advisors who make no claims about secrets but instead focus on helping clients stick to the non-secrets through thick and thin. A small number of firms, including Osbon Capital, have built their business on providing the education, clarity, and discipline to keep investors on track in all market conditions. That’s the real secret.
Steve Mott – Guest Columnist, Osbon on the Money Editor