How (Not) To Position Your Investment Portfolio For 2018

There seems to be some perverse human characteristic that likes to make easy things difficult.
— Warren Buffett

TLDR: No one can predict the direction of the stock markets, if they tell you they can, at best they’re delusional, at worst out and out liars.

Get ready for the dreaded (you think they’re useful, but they’re so destructive to your long-term financial goals) prediction articles/blogs/videos (let me know if you find any that don’t mention Brexit).

At the end of every year I will try and write my most brutally honest blog post about investing success. The underlying message will never change (if it does, pick me up on it), but the words will. These articles are some of the most read articles of the year. As humans, we love to seek ‘short cuts’ and ‘hacks’ to get ‘an edge’ or ‘advantage’ against our fellow humans. Sophisticated, diligent researchers win at investing, don’t they?

Having spent the last 15 years as a student of the money business and also a professional Financial Adviser advising families about how best to navigate the financial landmines we all face, there’s been a small group of commentators who’ve stood out as the tallest poppies in the field. These three individuals are Warren Buffett (the greatest investor of all time), Charlie Munger (Buffett’s investment partner and misbehaviour collector), and Nick Murray (Financial Adviser Coach). These men won’t mind me saying, they’re wise, experienced, rich old men. They’ve made the bulk of their net worth after their 50th birthday (Warren Buffett apparently 99%). They’re consistent with the stories they tell and have widely shared their wisdom with the world. It blows my mind why people don’t follow their advice. 

The conventional wisdom for investment success is to master ‘market timings’ and to ‘select’ the right country/sector/company that’s going to ‘outperform’ (outperform what, who knows). Most people underperform their own investments (that’s for another blog). This has never ever been proven to work. I’ll say again this has never been proven to work. So, to conclude why on earth would you seek this for your family and your future generations life savings?

What works is prudent financial planning that creates financial independence for you and your family, and also removes the anxiety from money worries, and at the end leaves a meaningful legacy to the people and causes you care about the most. The biggest contributor to financial life success is your behaviour (or misbehaviour). There’s no such thing as humans with money troubles. It’s always money with human troubles.

Buffett, Munger and Murray all study human misbehaviour and its impact on investing and life success. It’s been one of their life passions. It’s also a deep-rooted passion of mine. I will dedicate the rest of my career to telling the truth about your money, and giving people what they need and not what they want (in a caring tough love kinda way). A great Financial Adviser can deliver multi-generational wealth creation. If only the caring advice is followed. 

Why your investments will always perform (in the long run)

The stock market is a collection of the greatest companies on earth. Led by our smartest managers, filled with our smartest engineers, and sold by our smartest salespeople. Companies are organic beasts, so will adjust as market conditions do. The business/economic/debt cycle is in constant flux (always has been, always will be). The only asset class to fully capture human ingenuity is equities (which I prefer to call ‘the great companies of the world’ - Nick Murray’s definition). If you’re long/bullish/optimistic on humanity? Then owning equities (the great companies of the world) will bring riches to those who can be disciplined during their time of ownership. I believe (and history will back me up) that we will continue to advance and progress. Think how far we have come and will go. Did someone say Mars? The market will frequently test you with periods of extreme euphoria and then Armageddon. Boom and bust. Bull and bear. Timing these cycles is near to impossible, so don’t try to do it.

All of us would be better investors if we just made fewer decisions.
— Daniel Kahneman

Why you as an investor won’t always perform

No study has ever concluded that humans are rational decision makers and make optimal decisions. If there is such a study, please point me in the right direction. The studies confirm that we are bad at making wise decisions. The first step is realising we have a decision-making problem. The problem lies in our emotional impulses being triggered to fear immediate ‘threats’. This used to work. What once got us running from Lions and catching our lunch, won’t get us to retire rich and insure our income against disaster. The stakes are high for us to adapt and suppress our prehistoric emotions and if we don’t we will continue to favour short term joy for long term pain. Rather than short term pain for long term joy.

The greatest skills of the long term successful investor

Financial Adviser is a noble profession. We try and share the unvarnished truth about money with our clients. We can also only help people who wish to be helped. Lazy is a skill which gets a pretty bad rap in all areas of life (poor old lazy). It won’t help you become grade 8 in the violin or serve over 100 mph in tennis. Weirdly with investing it’s your best friend. The two quotes above tell you to keep it simple and make less decisions. Lazy investors win. The next great skill for successful investing is patience, which my great friend John Ndege (Pocket Risk) says is a super power. Hyperactive investors lose.

Here’s to the lazy (patient) ones.

Plan well, behave better, turn off the noise, enjoy a hassle-free investment journey.

Please see my predictions for previous years: 2017  

Also read: If Warren Buffet Was Your Financial Adviser HERE