Fundamental Investment Truths: Part Three

This is the third and final chapter in our review of Morgan Housel’s “rules for investors.”

“Things change quickly – and more drastically than many think.”

Fourteen years ago, Enron was on Fortune magazine’s list of the world’s most admired companies, Apple was a struggling niche company, Greece’s economy was booming, and the Congressional Budget Office predicted the federal government would be effectively debt-free by 2009.

“There is no such thing as a normal economy, or a normal stock market.”

Investors have a tendency to want to “wait for things to get back to normal,” but markets and economies are almost constantly in some state of generally unexpected motion, booming or busting and at rates that seem (and are) unsustainable.  Think of how quickly investors have gone from a general belief that oil production had peaked, to a period of excess supply and cratering prices.

“You are only diversified if some of your investments are performing worse than others.”

No one likes to lose money and it is natural to focus on what is doing well at the moment.  But things change, often very quickly, and the whole point of diversification is to be well positioned to weather market shifts.

“Don’t check your brokerage account once a day and your blood pressure once a year.”

You should definitely keep track of your portfolio statements, bank and credit card too, but don’t become mesmerized by short term market moves when your investment strategy is designed to reach your objectives over the longer term.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®