Lessons From 20 Years of Managing Money

The longer I’m in the money management business the more there is to learn but these are some of the things I’ve learned thus far:

1. A product is not a portfolio and a portfolio is not a plan. Personal finance and financial planning are prerequisites for successful investing.

2. Experiences shape your perception of risk. Your ability and need to take risks should be based on your stage in life, time horizon, financial circumstances, and goals.  But your desire to take risks often trumps all that, depending on your life experiences. If you worked at Nortel or AIG, your risk appetite will be forever altered and that’s OK as long as you plan accordingly.

3. Intelligence doesn’t guarantee investment success. Warren Buffett once wrote, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” There are so many highly educated individuals who are terrible investors. They can’t control their emotions because their academic pedigree makes them overconfident in their abilities.

4. No one lives life in the long term. Long-term returns are the only ones that matter but you have to survive a series of short-terms to get there.  The good strategy you can stick with in the short term is preferable to the perfect strategy you can’t stick with.

5. It’s never been easier or harder to set it and forget it. Investors have never had it better in terms of the ability to automate investments, contributions, allocations, rebalancing, and dividend reinvestment.  But there has never been more temptation to tinker with your set-it-and-forget-it portfolio because of all the new investment products, funds, zero-commission trading platforms, and trading opportunities. Every day it becomes harder and harder to avoid the new forbidden fruit.

6. Investing is hard. Ironically, coming to this realization can make it a little easier.

7. The biggest risks are always the same…yet different. The next risk is rarely the same as the last risk because every market environment is different.  On the other hand, the biggest mistakes investors make are often the same — timing the market, recency bias, being fearful when others are fearful and greedy when others are greedy, and investing in the latest fads.  It’s always a different market but human nature is the constant. The Illuminati is not out to get you but your emotions just might be if you don’t know how to control them.

8. The market doesn’t care how clever you are. There is no alpha for the degree of difficulty when investing.  Trying harder doesn’t guarantee more profits.

9. Overthinking can be just as debilitating as not thinking at all. Investing involves irreducible uncertainty about the future.

10. Experience is not the same as expertise. Just because you’ve been doing something for a long time doesn’t mean you’re an expert.  How many people who “called” the 2008 crash completely missed the ensuing bull market? All of them?  How many investment legends turn into permabears the older they get because they fail to recognize how markets have changed over time? 

11. There is a big difference between rich and wealthy. Lots of rich people are miserable. These people are not wealthy, regardless of how much money they have.  There are plenty of people who wouldn’t be considered rich based on the size of their net worth who are wealthy beyond imagination because of their family, friends, and general contentment with what they have.

12. Optimism should be your default. It saddens me to see an increasing number of cynical and pessimistic people every year.  I understand the world can be an unforgiving place and things will never be perfect but investing is a game where the optimists win.

Please remember you are not alone, we are here to help guide you throughout life's journey.

Best Regards, 

Paul Polyviou CFP, CLU, CIM