My investment philosophy is based on 4 principals. What is your investment philosophy?

I was listening to Morgan Housel’s new podcast recently (which I highly recommend by the way), and he said something along the lines of “Once you define your investment philosophy, you won’t be distracted by any noise that doesn’t align with it.”

It really resonated with me.

Success with investing is more about avoiding mistakes than anything else.


Therefore, having a clear, well-defined (evidence-based) investment philosophy will help you avoid getting distracted by any unhelpful ‘noise’, and keep you on the straight and narrow.

However, if you don’t have a well-defined investment philosophy, the risk is that you’ll be easily influenced and make financial mistakes.

I thought it might be helpful if I shared my investment philosophy which I can solidify into four principles.

Principal 1: Short-term returns do not help you achieve long-term goals

You must align your investment decision time horizons with your goal time horizons.

Most people have a long-term goal of enjoying a comfortable retirement.

Retirement will last two to three decades, hopefully longer.

Therefore, you must align your investment decision-making with that time horizon.

That is, ask yourself what the best investment you can make today that will maximise your wealth in 10, 20, 30+ years from now.

Short-term returns do not create long-term value.

Let me share an analogy.

If you operate a business, your long-term goal might be to create a sustainable and profitable business.

Of course, you could reduce the price of your product for the next few weeks (offer a discount) to generate more sales this quarter.

But that comes at the cost of creating long-term value because it cheapens your brand and trains your customers to never pay full price.

However, creating brand value might not improve this quarter’s results, but if you do it consistently, you are well on your way to deriving long-term value.

The challenge with becoming a successful investor is that good, long-term investments just take time.

That means investors must have a strong tolerance for delayed gratification – forgoing some wealth today for a lot more wealth in the future.

As Warren Buffett says, the market is very good at transferring wealth from the impatient to the patient (paraphrasing).

There are no shortcuts to generating long-term returns.

You just need to be patient.

Principal 2: You can’t build wealth if you don’t contribute

It is very difficult to create anything out of thin air, including wealth.

Most things require some contribution of time, energy, money or something else.

Building wealth is no different.

Successful wealth accumulation requires a regular contribution of cash towards growth assets.

That could come in the form of servicing investment property holding costs, regular share market investing, additional super contributions and so forth.

Put differently, if you spend all your income, it will be almost impossible for you to build wealth in the long run.

That means you need to manage cash flow effectively so that you can regularly invest some of your surplus cash flow.

To successfully build wealth you must invest on a regular basis.


Principal 3: You can’t pick unicorns

The thing with popular and new trends is that they often feel compelling.

By definition, a popular trend benefits from wide acceptance which means a large audience ‘believes’ in the trend.

It is easy to get swept up in this momentum.

However, if an investment lacks sound fundamentals, it is very likely (guaranteed) that its long-term investment returns will reflect its lack of quality.


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