What Doctors can teach investors

Today’s guest blog is from Andrew Webb, who is a writer, marketing and communications expert. He currently works for Dimensional and used to work for Fidelity. Here he highlights why at Solomons we use evidence based investing, not the latest fad. You may know that I advise quite a lot of medical consultants and I imagine you will find his topic title amusing.

What Doctors can teach investors

Newspaper reporters who interview centenarians on their landmark birthday cannot seem to avoid the temptation to ask how they have lived so long. Because most people haven’t the faintest idea how they have reached 100, they tend to attribute their good health to something like a weekly tea dance.

Medical professionals will say that the most likely reason for a long life is a combination of favourable genetic and environmental factors, access to reliable medical care and a healthy dose of good luck. It follows, therefore, that anyone serious about improving their chances of a long life is better off seeking the credible advice of a doctor, not taking speculative tips from a pensioner.

But these facts rarely get in the way of a good story.

The treatments doctors use to keep us healthy are tested by a process of empirical research and clinical trials. Considering health and wealth are both high on the list of priorities for many people, it is a shame that the investment industry is typically less rigorous than the healthcare industry.

Most people turn to the investment industry to help them research their investments. This is the same as asking a pensioner how they have lived so long. The industry’s self-analysis can range from outlandish to plausible, but it will almost never be based on scientific study.

We take a different approach; one that is based on scientific rigour and hard evidence. This approach identifies the sources of investment return and we aim to deliver them to you. This gives us confidence that we understand why your investments behave the way they do and why we are more able to design investment portfolios that suit your needs.

Andrew Webb

What We Believe About Investing

I’m working on the new website which will hopefully go live at www.solomonsifa.co.uk tomorrow. I was working on trying to describe our investment process and what we believe about investing, then came up with this (which is not our investment process) but thought it may be of interest. I’d welcome feedback, I’m very tempted to put it as a page within our new look site.

What We Believe About Investing

Long-term investment in equities and equity-like investments should provide a better chance of beating inflation over the long-term than cash, for which there is considerable historical evidence.
Cash is an important asset class and one that provides necessary reserves for living and unforeseen events. Everyone should therefore have some cash.
Inflation is a vital element in determining real returns.
It is not possible to consistently beat the market.
New investments are made with a time-frame of a minimum of 5 years.
Existing portfolios need to be carefully reviewed in light of target dates.
The future is unknown and that markets and investors behave erratically.
It is very unwise to borrow money in order to invest it and we do not advise it.
Nothing is guaranteed in real life, investment is risky.
It is possible to lose all your money.
Markets will go down, they will also go up.
Investing should not be entertainment.
If something sounds too good to be true it probably is.
If you don’t understand the investment, don’t invest.
There is little point in paying investment managers to outperform the market if they fail to do so consistently.
Part of our role is to minimize the cost of investing, not the entire role.
Tax should not the primary reason for investing.
It is very difficult, if not impossible to “time the market”.
Money is something to serve us, not the other way around.
There are very few successful DIY investors, but far more “how to” finance authors.
Investing is often emotional, successful investing is not, it is a disciplined process.
Compound interest is a lovely theory, but returns are not fixed, it remains theoretical.
You can only control the things you can control; you cannot control the market (legally).
Be prepared for disappointment, but remember that good things happen too.
Diversification reduces risk and returns, which is appropriate for most investors.
Sadly, you cannot have a high return without risk.
There is no such thing as the best investment, just a suitable one.
Insider trading is illegal, but being observant is not.
For any business to continue it must make a profit.
Historic performance data tells you what might have happened, not what did happen; actual performance is what you get because of what you did.
However harsh, tough or burdensome the regulation, there will always be crooks.
You cannot spend a %, you can only spend money.
The market is a place where people agree a price for disagreeing about the value of something in the future. Remember that it is a place for buyers and sellers.
If everyone else is doing something, that is not a good enough reason for you to do it too.
When your friends, colleagues or family offer financial advice, make sure that they are willing to be sued if it transpires that it isn’t legal, compliant or simply wrong.
You will not be the next Warren Buffett; even he struggles to be Warren Buffett each year.
You are wasting your time if you are looking for the next Apple or Microsoft.
A great investment strategy is worthless unless you implement it.
There is an awful lot more to life than “keeping up with the markets”, the media reports what has happened and speculates what might happen. If you think about it, this is remarkably like a trip to a fortune teller. If you throw enough out there some of it sticks.
Capitalism, by its very nature will morph into something that the market wants.
Insurance is something you need when you don’t have capital, it is a “replacement cost” if you do.
A bad investment experience should be used as a learning opportunity.
Don’t forget the investing lessons you have already learned.
As others have said, constantly repeating the same behaviour whilst expecting different results is a form of insanity.
Experts disagree.