Sports analogies for investing get overused. I’m going to continue that tradition here (don’t hate me).

The point of having a plan is so you can effectively play both sides of the court. Without a plan, you essentially play offense or defense but rarely both, leaving yourself exposed on the other end.

The typical mistake of buying high and selling low is repeated ad nauseam. There’s a good reason. Without a plan, the “plan” devolves into choosing one over the other. That mentality drives the focus on whatever has happened most recently in the market. Great returns become chased returns and poor returns are fled from. Continue Reading…

I’ve been going over Buffett’s Lecture at the University of Florida from 1998. I believe it’s one of his better lectures, maybe because his answers are less scripted than in recent years. You still hear the themes he repeats today only his answers are more in-depth.

One of the questions offered to him is about diversification, which I found interesting. His answer is one he’s repeated several times since in a similar form, yet for some reason it stands out. Continue Reading…

Most people should know by now that asset classes go through periods of good years and bad years. This is why you diversify – owning several asset classes with a low correlation – so they don’t all move in the same direction at once. Especially when that direction is down. What you end up with is a decent average return in the 6-8% range via index funds, depending on the allocation.

Then smart beta funds came along. While not the holy grail, smart beta does offer the chance of better than average returns. But value, momentum, low volatility, etc. all go through similar periods of good years and bad years. So you still have to diversify. Continue Reading…

So Dow 20,000 happened. Many people will take credit for it, undeservedly so. Sure it’s a cool milestone and the psychology around it is important but the number is arbitrary. It’s no more important than when the Dow hit 5,000 or 10,000.

Still, Dow 20,000 will be splashed all across the news this week, which will get people interested. Combine that with the fact that people have never felt better financially and perspectives may change.

Optimism is okay…until it spreads into other areas. When people feel financially better, they’re willing to spend more, they treat debt differently, they see they’re investments differently, maybe they like stocks more (Dow 20,000 certainly helps), and they might be willing to take more risks. Continue Reading…