Brad Steinman, Director of the Canadian arm of Dimensional Fund Advisors, offered up 10 important investment resolutions to start off the new year. Brad’s goal was to warn investors away from “ill-advised practices that are detrimental to their wealth” and hopes that “a set of New Year’s Investment resolutions, along with an advisor capable of helping investors adhere to them, will lead to a more prosperous future.”
Rather than rattle them off in what would be a rather lengthy blog post, we’ve decided to take a few resolutions at a time and provide some commentary on each periodically over the next several weeks.
Resolution #1: I will not confuse entertainment with advice. I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline, leading me to make poor investment decisions. If necessary I will turn off CNBC and turn on ESPN.
TAAG Thoughts: This is a topic we’ve covered at length in this space. There’s no question that what once passed as tabloid journalism has become “the news” across all fronts. Be it Jim Cramer, Brett Favre or the Kardashians, it can be difficult to differentiate between the evening news, CNBC and TMZ. The line between entertainment and information has been severely blurred if not erased altogether. We fully agree with Mr. Steinman that the best media to listen to when it comes to long term investment strategies is no media whatsoever.
Resolution #2: I will stop searching for tomorrow’s star money manager, as there are no gurus. Capitalism will be my guru because with capitalism there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else doesn’t have to fail.
TAAG Thoughts: This touches on several of our firms core values, most notably the notion that gurus, much like the media, are to be ignored. Those who “get it right” are impossible to identify in advance, rarely repeat their success and the actual return investors receive in chasing these soothsayers after the fact pales in comparison to the returns as advertised. For more on the obstacles and dangers related to this manner of investing, see Dan Solin’s blog from last year.
The thoughts on capitalism and the long term expected return on capital ring true as well. In the long term, the only bet an investor needs to place is that the companies of the world will continue to grow. There will be lots of bumps in the road, some wild successes and some companies that cease to be, but, in the long run, the world will continue to develop new innovations and grow its collective balance sheet as it always has. You can participate in that growth by holding a globally diversified portfolio that seeks not to beat or outthink a market that, in the short term, will almost always disappoint.
These resolutions may seem like simple ideas, but we see time and time again that it is so easy to get caught up in the media hype or the promise of something out there that will allow investors to hit that home run without taking the required risk. Neither is an accurate depiction of real life or where our expectations should lie when it comes to our portfolios.
We hope you enjoy these and the other resolutions to come.