Principle Based Investing

F. Skrainka Alan

Description

Principle Based Investing is the belief that principles must guide our long-term investment decisions and that predictions are useless, regardless of the source. Principles are the foundation of sensible investing. They are what allow us to ignore the day-to-day noise and emotional clatter that can jeopardize rational thinking and sound investment decision-making. In this sensible, well-reasoned book, Alan Skrainka draws on his many years as a successful investment manager to describe the process he has followed to help investors attain their specific objectives. These principles provide the guidance to enable investors to set a logical course, stay on course, and gain the advantages of a sound long-term investment program. Take these lessons to heart. They'll make your investment voyage easier and more successful. Clearly, the proof is in the principles.

Sujets

• Personal finance

Informations

• Publié par: First Edition Design Publishing
• Date de parution: 15 juillet 2014
• Nombre de lectures: 1
• EAN13: 9781622876044
• Langue: English

Extrait

Principle Based Investing: A Sensible Guide to Investment Success
Alan F. Skrainka


First Edition Design Publishing
Principle Based Investing
A Sensible Guide to Investment Success

Alan F. Skrainka, CFA

First Edition Design Publishing
Principle Based Investing
A Sensible Guide to Investment Success
Copyright ©2014 Alan F. Skrainka, CFA

ISBN 978-1622-876-06-8 Hardcover Full Color
ISBN 978-1622-876-05-1 Paperback
ISBN 978-1622-876-04-4 eBook

LCCN 2014939212

May 2014

Published and Distributed by
First Edition Design Publishing, Inc.
P.O. Box 20217, Sarasota, FL 34276-3217
www.firsteditiondesignpublishing.com



ALL R I G H T S R E S E R V E D. No p a r t o f t h i s b oo k pub li ca t i o n m a y b e r e p r o du ce d, s t o r e d i n a r e t r i e v a l s y s t e m , o r t r a n s mit t e d i n a ny f o r m o r by a ny m e a ns ─ e l e c t r o n i c , m e c h a n i c a l , p h o t o - c o p y , r ec o r d i n g, or a ny o t h e r ─ e x ce pt b r i e f qu ot a t i o n i n r e v i e w s , w i t h o ut t h e p r i o r p e r mi ss i on o f t h e a u t h o r or publisher .

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the Author nor the Publisher is held responsible for the reader’s actions. All investments hold risks that the reader should understand those risks thoroughly.
Principle Based Investing
A Sensible Guide to Investment Success

Alan F. Skrainka, CFA
DEDICATION

For Julie the love of my life
And my children Drew, Allison and Jack
…oh the places you’ll go
ACKNOWLEDGEMENTS

No book is a singular effort. I am greatly indebted to my colleagues at Cornerstone Wealth Management for their support of this project, especially my associate Liyin Bao. I am especially grateful to my friend and mentor, Brad Perry who is the most sensible investor I know.

I have learned so much from other professionals over the years, in particular Warren Buffett, Jeremy Siegel, Jack McCarthy and Bob Hendricks.

This book would not exist if not for the support of my tireless editor, Michael Dubes of FrontPage Media.

And finally, special thanks to my wife for her unending, loyal support of my career. Through all of the ups and downs she is, and will always be, the love of my life.
Table of Contents
INTRODUCTION
FOREWORD
PROLOGUE

Section I The Investment Process
Chapter 1 - PLANNING
Chapter 2 - ASSET ALLOCATION
Chapter 3 - ASSET MIX
Chapter 4 - IMPLEMENTATION
Chapter 5 - THE CONTEMPORARY ADVISOR

Section II Investment Choices
Chapter 6 - MUTUAL FUND INVESTING
Chapter 7 - UNDERSTANDING STOCKS
Chapter 8 – UNDERSTANDING THE BOND MARKET
Chapter 9 - INCOME FOR RETIREMENT
Chapter 10 - INDEX FUNDS
Chapter 11 - INTERNATIONAL OPPORTUNITIES
Chapter 12 - A PERSPECTIVE ON GOLD

Section III Essential Knowledge
Chapter 13 - UNDERSTANDING INVESTMENT PERFORMANCE
Chapter 14 - DEALING WITH DIFFICULT MARKETS
Chapter 15 - RISK
Chapter 16 - REASONS NOT TO INVEST
Chapter 17 - THE CASE FOR QUALITY
Chapter 18 - LEARN FROM THE BEST
Chapter 19 - TAX STRATEGIES
Chapter 20 - POLITICS & POLICIES
Chapter 21 - DEBT & DEFICITS
Chapter 22 - INVESTMENT PRINCIPLES FOR LIFE
Chapter 23 - THOUGHTS FOR YOUR FUTURE

Epilogue
ADDENDUM
INTRODUCTION

Warren Buffett once said, “Investing is simple, but it’s not easy.” It’s not easy, mainly for three reasons:

1. The investment industry is fraught with complexity and conflicts of interest. Investment products are often designed to sell well rather than perform well. The short-term focus and hyperbole that dominates the financial media makes it difficult to make well-informed decisions.

2. Financial markets are inherently volatile. This makes it very difficult for people to stick to a long-term plan.

3. Most people simply don’t have the knowledge or ability to invest on their own.

Which leads to a fundamental truth and the premise of this book:

Investment decisions should be based on investment principles, not predictions .

Principle Based Investing is the belief that principles must guide our long-term investment decisions and that predictions are useless, regardless of the source. Principles are the foundation of sensible investing. They are what allow us to ignore the day-to-day noise and emotional clatter that can jeopardize rational thinking and sound investment decision-making.
Sad to say, most investors take the opposite approach. They buy high and sell low in an emotional response to market volatility and the boom or doom forecasts that continually emanate from the media and Wall Street economists. The result is many investors see their hard-earned savings washed away by poor decisions, questionable advice and the financial storms the markets regularly impose.

Economists are Often Wrong
Americans tend to hold economists in high esteem. But as bright and educated as they are, economists make mistakes. They are not clairvoyant. They can predict, speculate and guess but they are frequently wrong and sometimes dead wrong. When they are, untold numbers of investors who unquestioningly followed their advice suffer the consequences.

A singular example of economic folly was the inability of nearly every economist to foresee the financial chaos of 2008. Fed Chairman and former Harvard professor Alan Greenspan authored a book five years later titled The Map and the Territory: Risk, Human Nature and the Future of Forecasting . In it, he attempts to explain what went wrong and what might be gleaned from the experience.

Greenspan writes, “But leading up to the almost universally unanticipated crisis of September 2008, macro modeling unequivocally failed when it was needed most, much to the chagrin of the economics profession. The Federal Reserve Board’s highly sophisticated forecasting system did not foresee a recession until the crisis hit. Nor did the model developed by the prestigious International Monetary Fund, which concluded as late as the spring of 2007 that “global economic risks [have] declined since September 2006…the overall U.S. economy is holding up well…[and] the signs elsewhere are very encouraging.

JPMorgan, arguably America’s premier financial institution, projected on September 12, 2008 — three days before the crisis hit — that the U.S. GDP growth rate would be accelerating into the first half of 2009. What went wrong? Why was virtually every economist and policy maker so far off about so large an issue? Simple models do well in the classroom as tutorials, but regrettably have had less success in the world beyond.”

In an October 20, 2013 interview with CBS Sunday Morning , Greenspan said he was struck by an editorial critical of economic forecasts. He asked himself, “Do we economists know anything? It was a legitimate question because if economists don’t know enough to capture the most extraordinary economic event in our lifetime, what in the world do we know? How in the world did I miss it?”

Here the world’s most preeminent economist basically admits that the entire field of economics is a failed science. Yet the predictions of leading economists are what the vast majority of investors rely upon to make investment and retirement decisions. Greenspan’s observations are not exaggerated. I asked Blue Chip Economic Indicators of the 56 economists who published a forecast in September, 2008, how many anticipated even a mild recession? The answer: none.

So if the entire economics profession can’t accurately forecast the economy, what chance do you have of making informed investment decisions with your money?

If the Harvard-educated chairman of the Federal Reserve — a scholar who has spent his life studying and teaching economics — completely misinterprets the available data and botches his analytical forecasts, what chance do you as an individual investor have of understanding, much less predicting, the markets and the economy?

That’s the question Principle Based Investing seeks to answer, and the purpose of this book. If accurately predicting movements in the economy and financial markets is a failed approach, there must be another way. My goal is to provide you with a reliable framework for decision-making based on investment principles that have stood the test of time.

My sincere hope is that reading this book will help you avoid the mistakes made by so many others. But you must take the time to understand how to invest your money properly. If you are unable or unwilling to invest that time, you need to identify a trusted advisor that can help you achieve your investment goals. Whether you rely on the advice of a financial professional or make decisions on your own, investment success will hinge on your acquiring a good understanding of the principles described in this book.

Part of the motivation to write this book arose from my experience reviewing other books on investing, most of which fall into one of three categories:

Market Predictions
Experts and their Secret Techniques
Sound Investment Advice

Market Predictions

Titles for these books include Dow 36,000, The Great Boom Ahead, The New Era Economy, The Coming Collapse and The Depression of 1999 . Designed to create an emotional response, their message is, “Follow my advice and you can beat the markets and become wealthy.” Presumably this is because “This time is different” or “I know something really important (good or bad) that is about to happen!!”

Experts and their Secret Techniques

These books usually carry titles like, Trade like a Pro , Warren Buffett’s Investing Strategies , Beating the Street or Make Millions in Real Estate with No Money Down . The promise here is “Follow six easy steps, beat the markets and become rich.”

Sound Investment Advice

There are some good choices among the smallest