When I was a kid, I was fascinated with communication devices. Our rotary-dial telephone shared a party line with neighbors. My brother and I played with tin cans and a string (it worked!) sending cryptic messages. One Christmas, we got walkie-talkies, which allowed us to talk almost 100 yards apart.

Following college graduation, I went to work for Motorola, designing and selling FM 2-way radio systems. I had a powerful radio package in my car, which enabled me to "talk" from Port Angeles to Seattle. Wow!

Today, you and I use cell phones. These devices connect us to others in myriad ways including voice and data. The latest craze, called "texting," involves sending potentially long messages in a condensed format. In fact, an entire conversation might contain just a few carefully selected letters.

IMHO (in my humble opinion) YNBFFL (your new best friend for life) is the WOGI (wisdom of great investors). What follows can serve as a valuable guide as you navigate an everchanging market environment on your journey to building and maintaining sustainable wealth.

During extreme periods of the market, which we unquestionably have now, investors often make decisions that can undermine their own best interests. That is why I believe it can be very valuable to look back in history and study closely the timeless principles that have guided some of history's greatest investors through both good and bad markets.

Though each of these great investors offers perspective on a distinct topic, the common theme is that a disciplined, patient, unemotional investment approach is required to reach and maintain your financial goals.

Avoid self-destructive behavior

Benjamin Graham, called the Father of Value Investing, said, "Individuals who cannot master their emotions are ill-suited to profit from the investment process." Emotions such as fear and greed can lead to such negative behavior as chasing the hot manager - and I don't mean "hot" as in good looking - attempting to time the market or otherwise abandoning their investment plan.

Understand that crises are inevitable

"History provides a crucial insight regarding market crises; they are inevitable, painful and ultimately surmountable," wrote Shelby M.C. Davis, founder of Davis Advisors. Investors who bear in mind that the market has grown despite and because of crises and uncertainty may be less likely to overact when faced with these events, more likely to avoid making drastic changes to their investment plans and better positioned to benefit from the long-term growth potential of equities.

Don't attempt to time the market

Peter Lynch, former manager with Fidelity, noted, "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves." Moving out of the market with the intention of moving back in when things seem better often leads to disastrous results. History proves that missing just the 60 best trading days over a 15-year period can turn a 10-percent positive average annual return into a -3 percent negative average annual return (15-year period from 1993-2007 represented by the S&P 500 Index. Past performance is no guarantee of future results.)

Don't let emotions

guide your

investment decisions

Warren Buffett put it simply: "I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful." Counter-emotional investment decisions like buying at times of maximum pessimism (now?) or resisting the euphoria around investments that have outperformed can help build wealth.

Disregard short-term forecasts and predictions

Economist and author John Kenneth Galbraith believed that the function of economic forecasting "is to make astrology look respectable." While prognosticators and forecasters may be compelling, they usually add no real value. Do not waste time and energy focusing on variables that are unknowable and uncontrollable over the short-term, like the direction of interest rates or the level of the stock market. Instead, focus your energy on things you can control, like creating a properly diversified portfolio, determining your true time horizon and setting realistic return expectations.

Finally, history teaches us that you make most of your money in a bear market; you just don't realize it at the time.

I hope these words of wisdom are helpful. Until next time, TTFN.

James D. Hallett is an investment advisor offering investment advisory services through Hallett & Associates, P.S. a Registered Investment Advisor.

We encourage an open exchange of ideas on this story's topic, but we ask you to follow our guidelines for respecting community standards. Personal attacks, inappropriate language, and off-topic comments may be removed, and comment privileges revoked, per our Terms of Use. Please see our FAQ if you have questions or concerns about using Facebook to comment.
blog comments powered by Disqus

Read the Oct 20
Green Edition

Browse the print edition page by page, including stories and ads.

Browse the archives.

Friends to Follow

View All Updates