Words are Powerful

The stock market only has value to investors if it survives and goes up, and so far it has survived and gone up for a few hundred years (though historically with volatility).

It is the compounding of the reinvested profits of a company that contribute to the rise of its stock and consequently to the rise of the stock market.

The market may be efficiently priced for the present, but it may be inefficiently priced for the future, thus creating an opportunity for astute investors.

The dramatic and broad-based rise in the stock market should make investors cautious.

Remember the "CARDINAL RULE OF INVESTING" – for every buyer there must be a seller and for every seller there must be a buyer – and they both think they're right. You had better know what is motivating that other person. Of course only one can be correct, the one who bought or the one who sold; and it is the correct one who is rewarded.

Two of the biggest components of portfolio return are investment fundamentals and investment risk.

We believe long-term investing based on the fundamentals of a company still works. Investors who debate this are usually short-term traders who haven't owned investments long enough to see them bear fruit. When stocks seem to all go up at the same time, i.e., 1999, it is time to consider selling some of them. When they all seem to go down at the same time, i.e., 2009, it is time to consider buying some of them.

Buying mistakes happen when an investor feels hurried, as in when they feel they are missing out on an investment everyone else seems to have discovered.

Unfortunately for many investors, it is difficult to control the urge to sell. They either want to "protect" themselves from a potential correction or crash or to "lock in" a profit before it evaporates.

In reality, we believe staying invested is actually the best protection.

In the long run substance matters most. Investors should forget about what is popular or "pretty" and think about what companies possess the most "weight."

To build wealth, one needs to save and then invest those savings offensively with varying degrees of risk. To preserve wealth, one needs to have wealth to begin with, and then invest it defensively as factors such as inflation and deflation seek to erode it.

The next time you are attracted by an investment box, remember that the "box" may not be the "solution." Look inside and find out, "Where's the beef?" The contents, the meat and potatoes, are the meal.

Often, experienced investors sense a change in the market while inexperienced investors just believe they have gotten "smarter." Whether driving or investing, you must constantly pay attention to what's in front of you. That's why the windshield is bigger than the rearview mirror.

The future will contain events that back testing is unable to predict, thus back testing should not be the basis for making investment decisions.

Today one can go to websites like Valueline, Standard & Poor's, Thomson Reuters, Barron's or Yahoo Finance and collect information in minutes. However, the real work cannot be finished by the computer.

If you want to be a more successful investor, don't be afraid to work. Work can lead to wisdom, and wisdom combined with time, experience and thoughtful deliberation becomes judgment.

We believe the way to protect yourself from the next correction is to almost never sell (liquidity needs aside).

Investors should plant multiple seeds, because unfortunately, not every seed will germinate. In a well-diversified portfolio, blooming may be staggered to better achieve investment objectives.

Dealing with the impact of investor emotion is what, in our opinion, is the most difficult aspect of investing.

Patience comes from trusting your investment process and having the discipline to use it to take advantage of opportunities.

Patience is the investor's greatest friend, and emotion their greatest enemy.

Though we know that stock market cycles happen, unfortunately they are rarely uniform in their arrival, departure or length. This is what catches investors off guard, why they spend bear markets in a state of panic and why they frequently learn very little about how to act during bear markets.

Investors must constantly remind themselves that there is always a person on the other side of the trade. They must remember that bear markets will be the best chance to capitalize on others’ fear.

Through experience, we have long believed that all investing, whether managed by humans or managed by computers programmed by humans, is subject to the impact of emotion.

The power of emotion and the exponential power of group thinking undermine the market efficiency theory.

We believe the success of the great investors came from a combination of doing the analysis (of course) and more importantly, understanding and capitalizing on the emotion of investors.

A key to investing is to understand when emotion overpowers fundamentals.

Worrying about when the next correction is coming and what you should do about it does nothing to secure your financial future. What is valuable is spending the time to build a solid portfolio that can weather the storms when they come.

Take advantage of the opportunities that are created by all the nervous investors when their fears outweigh their better judgment.

If your investment philosophy is sound, and you concentrate your efforts on making correct buy decisions, you will be less likely to feel the need to sell out of fear.

We believe it is during bull markets, not bear markets as is commonly thought, that critical thinking is more important, yet less likely to be used.

Bull markets may also cause investors to relax their discipline regarding investment choices or believe their investment skills may be far more extensive than they actually are.

A bull market also causes some investors to start taking bigger investment risks, especially if they are trying to “catch up” from a lack of saving and investing in the past, or from a fear of “missing out.”

The most insidious danger of a bull market is when it causes investors to lose their ability to think critically.

Bull markets mesmerize investors with visions of “performance.” This distracts them from the more important job of focusing on “results,” such as paying tuitions, generating an income during retirement or building a long-term portfolio.

Volatility is not risk unless you don’t know the difference.

Volatility, a sign of inefficiency and emotion, occurs when investors under-appreciate and undervalue or over-appreciate and overvalue information that is digested in the process of setting stock prices.

Finding a true gem of a company is rare and difficult. Holding onto it for a long time is also rare and difficult. Not selling too early takes tremendous discipline and patience, particularly when the stock is volatile due to events both within and outside a company’s control.

In scary and volatile times, investors with the courage and patience to buy good assets (when popular opinion suggests selling) should, and will, be the ones rewarded.

Make no mistake, "performance" is important, though in the end we believe it is "results" that matter most.

Remember, it was the tortoise that won the race.

We suggest that instead of being concerned about “performance” (and everyone else’s performance), identify your goals and make "results" your top priority instead.

We believe sending both you and your portfolio into retirement at the same time is dangerous – and unnecessary.

If you are retired, or simply want to prepare for financial responsibilities, consider hitching some investment horses (stocks) to your wagon and maybe they can do some of the hard work for you.

Unfortunately, the downside of trying to “bulletproof” your portfolio just before retirement is that you may need to live off it for just as long as your working career had generated a paycheck.

It is easy to understand that what and how much you invest will affect your retirement income. What is often overlooked is the role of time in determining your results.

Time is important because it is the critical component of compounding, and compounding is perhaps the most critical component to making money.

An advisor must be able to articulate both their philosophy and process to you.

As with any investment, make sure your advisor is versed on the contents, not just the packaging.

Beware an advisor who presents charts and graph-filled presentations touting statistics on what worked in the past. What worked in the past for someone else may not work in the future for you.

Attitude, patience, worrying, saving and spending are all factors that affect investment performance and are the purview of the investor as well as, if not more so than, the advisor.