The knowledge that most non-investment professionals have about investing has
come from newspapers, magazines, etc. It is important to remember that the
objective of the press is to sell newspapers, whereas an investor's objectives
should be to earn an above average rate of return without "betting the shop."
The experience and the background of the person offering advice is critical to
the credibility of the advice they are dispensing.
An investor should control one's tolerance for risk by allocating money between fixed-income (low risk), and a professionally run diversified stock portfolio (higher but manageable risk). The percentage allocation to each sector will be determined by one's individual definition of risk.
When analyzing stock portfolio returns, we believe that there is a high correlation between achieving long-term capital gains objectives and keeping major losses to a minimum. Risk should always be assessed before looking at what can be gained. Holding onto your hard-earned money should be of paramount importance, rather than risking it, imprudently, to make a slight gain with a much higher risk factor.
The quality of a company's earnings, the ability to produce excess cash flow, and the confidence in the predictability of a company's earnings based on proprietary product lines are measurements of risk, not the volatility of the stock. Attempts to predict the "stock market" are a long-term failure process.
Investing is a dynamic endeavor, as opposed to a static event. There is no investment that can be held forever without some kind of quarterly monitoring. We try to assess the risk/reward value of a stock and continually monitor each company in our portfolio to see that it meets our criteria. When a stock fails to meet the criteria, it is sold. We only purchase stocks that we determine have unrealized potential value. We would prefer sitting with cash and waiting for the right stock, than investing in a riskier situation.
Philosophically, money committed to stocks should be invested with no less than a 3 to 5 year time horizon. Remember in the fable that the tortoise beats the hare. In order to get value, one needs to invest against conventional wisdom, and time is needed for this momentum to change.
TAKE ME BACK!