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Established in 1992, privately owned and not associated with any bank, insurance company or investment fund manager.

 


 

Investment philosophy

INTRODUCTION
PART 1 - The nature of investing
PART 2 - Setting an objective
PART 3 - Determining a strategy
PART 4 - Criteria for selecting investments

Investing is part art and part science. It involves making decisions with imperfect knowledge and without any "right way" to make these decisions.

This is no different to many other fields which require judgment. For example, if two artists were each to paint a portrait the portraits would not be identical. Even in fields such as law, medicine and engineering there are many ways to skin a cat and the way one chooses will be influenced by one's experience and training.

It is therefore to be expected that two financial planners will not give the same advice. Judging the quality of investment advice is much like trying to judge an art competition in that it is generally easy to separate the good from the bad, but there is often disagreement about which is best.

Even in retrospect it is difficult to judge the quality of investment advice as the return on an investment depends in part on luck and there are times when poor advice may lead to good outcome and other times when good advice may lead to poor outcomes.

This is the nature of investing. There is no certainty. There are no guarantees.

Investing is very much like life.

Each day we make decisions without being 100% sure of what will happen and we cannot totally avoid the risk of things going wrong. On the other hand there is a great deal we can do in terms of managing the risks we face. For example, driving a car is potentially very risky, but we can manage risks in the following three ways:

  • We can reduce the likelihood of an accident by using common sense.
  • We can reduce the likelihood of severe personal injury by wearing a seat belt and by driving a car which has a high safety rating.
  • We can reduce the likelihood of severe financial loss by having adequate health and motor vehicle insurance.

The difficulty of determining the best investment advice is reflected in the fact that we have different styles of driving, drive different cars and make different decisions about our insurances. We don't all make the same decisions because there is no best set of answers. Instead we make decisions which, based on our perspective, we feel are most appropriate to our circumstances. "Best" is therefore subjective and is doubly subjective in the case of investment advice where the advisor is trying to recommend what is best for the client.

Continue to PART 2 - Setting an objective