September 17, 2007: Investment review for most of us

I am back from Toronto after a stirring and most memorable "reunion" with Croatians from the grandfather's village area in the province of Zumberak in north central Croatia (see previous post).

Driving home, I thought it would be appropriate to take a day or two, relax and review some investment principals that are quite often discarded in haste or in that moment of invincibility many of us feel as investors.

1. No one accurately predicts human behavior in other matters, so there is no reason to expect anyone to predict future investment prices.

2. Coincidence and luck play a big part in any investor's results, and they can make a nonsensical technique appear to have been confirmed by history. Be skeptical of "past performance".

3. The truth is often stretched in the investment business, just as it is elsewhere- so take all claims for an advisor, a trading system, or a method of analysis with a grain of salt.

4. Any assertion that a particular method of investment analysis is "scientific" should be ignored. Controlled tests aren't possible for economic theories.

5. Don't believe an investment rule simply because it seems to be widely respected.

6. If there were a single trading system or school of investment analysis that could beat the market, investment advisers and system creators would not be constantly devising NEW systems they hope will beat the market.

7. If anyone had found the magic key to investment riches, he would not be telling you of the profits his system would have produced (hypothetically), he'd be telling you of the profits it actually did produce.

8. Testimonials for investment systems and advisers are of no more value than they are for gurus, astrologers or used-car dealers.

9. Some people are especially talented as investors or speculators - just as some people are talented athletes or musicians.Don't expect to imitate them successfully unless you have similar talents.

10. Since we don't expect an athlete to be able to explain how he runs so fast, we should not expect a successful speculator to show us how he or she acquired the Midas touch.

Shake free of the "impossible dreams", build a holistically diversified portfolio ans walk away when someone offers to sell you the secrets of the future.

Only then will you get on with the business of finding steady profits and safety in an increasingly uncertain world.