Trade The Journey

Trade The Journey

10 lessons from “The Economist: Guide to Investment Strategy”

Ever try reading the Economist magazine? It’s not for the faint of heart, almost every page is an article with very few advertisements between the pages.The magazine provides a great outlook of the current events both domestically and internationally.  If you can read the Economist from cover to cover without stopping to looking up a word or phrase, kudos.

On one of my many visits to the library, I picked up this book on investment strategy and managed to get through half of it, which is a major accomplishment. It’s not because I give up that I discontinue reading books until completion, its the information. What I mean is that I often have to look up the terms or maybe ideas in another book. I’m learning to refocus and finish reading the book I started with.

This book is very much about strategy but one aspect the book hammers home is what investors should truly be on the lookout for.  Risk. Understanding risk and what it means for you is vital to the investors’ success. With great success comes great risk, nowhere is this truer than in the stock market. “Just because you got away with it, doesn’t mean you didn’t take any risk.”

One thing I’d like this blog to help myself and others understand is that avoiding risk is not necessarily the best way to guarantee a return.  In some scenarios, avoiding risk can be a risk.  In order to keep pace with inflation, you must encounter some risk to ensure your money at least moves in unison with inflation.

Here are 10 lessons, I thought might be helpful to share from the book:

  1. If it is too good to be true, it probably its.
  2. Returns in excess of return by the government only achieved through risk.
  3. Risk is most obvious when an investment is volatile and least obvious when a risk investment has not shown much volatility.
  4. Be wary of suggestions of low volatility/superior returns.
  5. Don’t invest in what peers do, unless you understand it.
  6. Be diversified. Understand what diversification truly means.
  7. Pay attention if an adviser gives you inconvenient cautious advice (Avoiding something you’d like to invest in). Could it be that the adviser prefers you invest in an investment in which they gain commission?
  8. Just because an investment firm is regulated do not assume authorities checked everything. Remember, Enron, they hid their bad assets.
  9. Social Status does not equal Honesty. Plenty of CEOs’ to learn the lesson from.
  10. Rely on Due diligence.

Thoughts?

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