Before any success in nearly any area of expertise you need some preparations. This could be a theoretical background or years of experience. Lets say that you have been there. The preliminaries are over. Then the question is; what are the pillars of successful portfolio management. There are those investment gurus, like Peter Lynch, Warren Buffet or George Soros (All present at the first page of http://www.investopedia.com/university/greatest/) to whom we might want to take example by; Peter, Warren or George. Their rules have been successful so why shouldnt we copy them. So the first pillar is about these rules. Investment is a game you can learn and there are many examples to follow. Just open your search engine and type: Peter Lynch Rules. I searched for Warren Buffet Rules and found: Rules # 1: never loose money, Rule # 2: Never forget rules # 1. Anyhow, the investment game is not new, information is nearly free and you should be able to retrieve a set of rules used by the masters. This brings us to the second pillar. Credibility. Credibility is one of the most important topics in both economics as in investment. The investment market acts by the existence of expectations, and these expectations bear certain credibility. Companies that report earnings that continue to fail expectations will under-perform for a long period, even when the next first reported earnings will meet the expectations again. The link with rules is perhaps a bit different that you might have thought at first. The rules you apply needs to be credible. And this can only be the case when they are yours. You are not Peter, nor Warren or George. After a while you will know what rules work for you and which do not. And then, pillar number three. Once you have found your rules, you need the discipline to follow them. This is perhaps the most difficult one. Do what you have said to do. Think about the following anecdote. Someone in a little village always bought a lottery ticket on Friday. Always buying the same number. Always on Friday. One day, this person, after years of gambling and never any reasonable prize... That Friday this person, thought, Im off. I quit. And you probably already know what happened later that day... 2006 Hans Bool |
