Extract from Your Investment Philosophy: A Guide to Managing Wealth & Protecting it from Fraudsters, Marketers & Doom Merchants By Peter Mancell & Daniel Crowe
Why We Wrote This Book
What are your investment beliefs?
It’s a simple question and one that should be easy to answer. A set of principles orientates us. It gives us confidence to set off in the right direction. It offers a source of reassurance and strength when challenges arise. Every investor needs to believe in something, but ask someone what their investment beliefs are, and you might draw a blank look or nervous laugh. That simple question can be confronting.
Even with their life savings on the line, it can be a struggle for investors to identify and settle on a simple, yet robust set of investment beliefs.
We understand that struggle.
We regularly see investors who are absent any beliefs or have pieced together beliefs that will prove detrimental to their financial wellbeing. A person without a robust philosophy can spend their time and money bouncing from speculation to scam, before concluding the financial world is fraudulent and they never stood a chance.
It’s not true, but if you don’t know what to believe in, you might believe anything. Here are two stories we encountered while writing this book.
A retired couple contacted us. They admitted to being lifelong poor investors. Dud investments had dried up their capital. They existed on the age pension, had no savings, and couldn’t afford the maintenance on their home. As luck would have it, they bought that home decades ago in what eventually became an expensive suburb near Sydney’s CBD.
The home was worth several million dollars. They intended to downsize and invest the remaining balance. Despite their poor investment history, they were already eager to allocate the proceeds to an undiversified, high yield investment that caught their eye. They couldn’t identify the fees, didn’t understand any of the risks and were blinded by a stated return. Their investment track record was unlikely to improve.
A professional couple contacted us. Successful and intelligent. She worked in management for a large multinational company. He ran a mining services company they co-owned. The pair were on a journey of investment discovery. Furiously googling. What is indexing? What is a fiduciary? What had led them on this journey of discovery? Investment failure and fraud.
The pair were convinced their retirement savings would benefit from “more control”. The couple switched their nest egg from one of Australia’s robust superannuation funds, to be self-managed and take advantage of more “sophisticated” options. They lost half their retirement savings. Yes, their research started after they lost a substantial amount of money.
These stories aren’t uncommon, and it doesn’t have to be this way.
Our Story
Peter has spent five decades in the financial advice industry. Daniel, just over a decade, with a patchy self-directed investment life. Unfortunately, neither of us settled on our beliefs on day one. We both experienced frustrations with what’s often sold as investing. Be it picking the next company to boom or searching for hot investment managers.
Eventually we had to ask ourselves: is there a better way?
There was. In the early 2000’s, Peter, and some likeminded colleagues, from Australia and New Zealand, formed the Asset Class Investors Group. This study group evaluated and then committed to a compelling evidence-based investment philosophy as part of their existing client first advisory process. In the mid 2010’s the group linked up with advisory firms from every continent across the world, to form the Global Association of Independent Advisors (GAIA).
The nineteen GAIA firms utilise a similar set of principles to those outlined in this book. Many of the GAIA firms have used these principles for over two decades. This has resulted in thousands of investors around the world being reliably served by an investment philosophy that avoids a reactionary guessing game, to instead focus on the evidence.
You deserve that same chance to understand what works and what doesn’t. There’s no need to spend a lifetime in a haze or have a moment of clarity after a disaster. Such outcomes are avoidable. Understanding what is and isn’t possible can help you avoid a big mistake, or many little mistakes that are just as costly.
Five simple principles offer all investors an evidence-based alternative to forecasting or speculating about the future. If you have a casual understanding of team sport, you know the players who take the field or court to begin any game are known as the starters, in basketball they are known as the starting five.
We’re co-opting the term, here are your investment starting five:
Markets work.
Risk and return.
Diversification.
Asset allocation.
Discipline.
Every investor should understand these principles before they walk onto the court. If you can focus on these five principles, and understand why they are important, we believe you will become a better investor. There are other elements we address, but we view the starting five as the key principles underpinning every successful investment experience.
There are no gimmicks within this book, it’s deliberately short, and we have an admission: there is nothing new within its pages. All the information inside is already available elsewhere in thicker books and detailed academic papers, but we’ve kept it to the point. We want you to quickly acquire the knowledge to be confident throughout your investment life.
While this information is freely available, it is usually ignored by those who don’t benefit from investors knowing about it. This may seem outrageous, but this information is the antithesis of traditional investment management and the media infrastructure that enables it.
In contrast, the focus remains on forecasting or predicting. Stock picking and market timing. The next hot company, sector, or country to boom, or the forecast of a financial apocalypse that will destroy your wealth! This narrow focus on trying to control and react is costly, exhausting, and destructive.
We aim to free you from it.
No longer should your investment outlook be formed by a scrap of information here, an old wives’ tale there, or various fallacies and poorly formed views, all washed down by an inflammatory cocktail of media misinformation. Instead, it can be guided by principles that are backed by evidence.
We believe everyone can enjoy a successful investment experience.
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