Monday, September 1, 2014

Investment Philosophies in 10 Words or Less

In 2012, writing in the Wall Street Journal, Jason Zweig penned an article, “Can You Sum Up Your Investing Philosophy in 10 Words?” This semester the students in Marquette’s AIM program are studying different approaching to investing. They are starting with understanding investment philosophy.

An investment philosophy is defined as a coherent way of thinking about markets, how they work (and sometimes do not) and the types of mistakes that you believe consistently underlie investor behavior. An investment strategy is actually much narrower – another topic that the students will be studying this fall.

Zweig asked some leading investors and financial thinkers for their own contributions. Here are a few:

Determine value.  Then buy low, sell high.  ;-)   David Herro, chief investment officer for international equities, Harris Associates, and manager of Oakmark International Fund

If everybody wants it, I don’t. Avoid crowds.  Gus Sauter, chief investment officer, the Vanguard Group

Other people are smarter than you think they are.  Index.   Laurence B. Siegel, research director, Research Foundation of the CFA Institute

Risk means more things can happen than will happen.   Elroy Dimson, expert on long-term stock returns, London Business School, and co-author, “Triumph of the Optimists”

Invest for the long term and ignore interim aggravation.   Charles D. Ellis, director, Greenwich Associates, and author, “Winning the Loser’s Game”

100% of business value depends on the future.  Bill Miller, chairman and chief investment officer, Legg Mason Capital Management

Plan for the worst. Hope for the best.  Robert Rodriguez, managing partner, First Pacific Advisors

Control what you can: your savings rate, costs, and taxes. Don Phillips, president, fund research, Morningstar

In the end, you cannot take your investments with you.    Meir Statman, finance professor, Santa Clara University, and author, “What Investors Really Want”

The less portfolio management costs, the more you earn.   Burton Malkiel, professor of economics emeritus, Princeton University, and author of “A Random Walk on Wall Street”

Own competently managed, competitively advantaged businesses at discounted prices.  O. Mason Hawkins, chairman and chief executive officer, Southeastern Asset Management

Do the math. Expect catastrophes. Whatever happens, stay the course.   William J. Bernstein, Efficient Frontier Advisors, and author, “The Four Pillars of Investing”

Fallible, emotional people determine price; cold, hard cash determines value.  Christopher C. Davis, chairman, Davis Advisors and co-manager, Davis New York Venture Fund

Save. Invest long-term. Compounding returns builds. Compounding costs destroys. Courage!  John C. Bogle, founder, the Vanguard Group

Are you smarter than the average professional investor? Probably not.  William F. Sharpe, emeritus professor of finance, Stanford University, and Nobel Laureate in economics

Spend less.  Diversify globally.  Own whatever’s feared, shun whatever’s beloved.  Robert D. Arnott, chairman, Research Affiliates LLC

Finally, it’s worth remembering that the great investing analyst Benjamin Graham engaged in a similar exercise but came in at seventeen words: Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.”  Benjamin Graham, “The Intelligent Investor,” Chapter 20.