Lessons learned in San Francisco

By Mike Jones, posted December 17, 2015

Many of our readers are probably not aware that I have been in San Francisco having a highly precise surgery performed on my right knee. (Thankfully, all went well and I am on to the rehab phase!) But as an investment manager I am never really "off," so you can imagine the difficulty of watching the market falling 5 days in a row during my first five days away from home. 

These times are not for the faint of heart. They do, however provide opportunities for perspective, and I can't stress enough how important perspective is. With time on my hands, I have been considering those lessons I have learned in my 31 plus years as a financial professional. 

1. Invest according to your investment objective and risk tolerance.  If you can get this one right, life as an investor will go well. Anyone in finance will tell you that to make a higher return you have to take more risk and that higher risk taking leads to higher returns. What they won't tell you is that when an investor is mismatched to their investment objective and risk tolerance, they will make horrendous mistakes. You have probably done this. I've done it. Don't let this be your downfall as an investor. There are many tools available to help an investor determine appropriate objectives and to measure risk tolerance. Don't invest your money until you have determined these two things.

2. Diversify.  On the surface this sounds like an easy task. Just spread your investments out across the capital markets and sit back and allow the returns to come. Some investments will out perform and others will under perform. The only problem is that the history of financial markets teaches us that when most investors need their diversification to work for them the strongest, it fails.  This is one area where a financial professional can truly aid the non-professional investor. The more time I spend in this business the more I come to realize I need to work harder than ever to help clients truly diversify their portfolio. 

3. Avoid Extrapolation. Take heed, for this insight could be the most important one we consider today. Investments will go down in value. And sometimes they drop sharply for a short season. When this happens do not extrapolate those short term losses into the future, concluding that, "If this continues on for the next 12 months, then I will be completely broke."  The danger of this thought process is that it leads to selling investments when they are down in value and buying investment when they are higher in value.  Stop and think about this one for just a minute. Think about it again. Then do your very best to avoid the mistake of "extrapolation."

Remember, I am here if you need to talk through any of these issues. If you need help figuring out your objectives and determining your risk tolerance, I'm here. If you need assistance finding the right balance of diversification for your portfolio, I'm here. If you need a shoulder to lean on to avoid extrapolation, I'm here. Just give me a call at 251-5844.