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Have you also been playing the what if game since the
severe market declines in 2008 and in the the first quarter in 2009?
I
know I did and, to a large extent, it kept me out of the
market last year causing me to lose out on quite substantial
gains.
It is not that I did not find any attractive investment
opportunities,
I was just frozen like a rabbit in the headlights by the banking
crisis, Lehman bankruptcy and sudden market decline.
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Imagine we have a friend
that makes a lot of
commitments but only does 53% of the things he said he will do over the
next year and only 7% of the ones he commits to over two years.
We are planning a camping trip this year and a school reunion in two
years. How many tasks would you trust your friend with?
Probably not many, if anything at all, or maybe things of little
importance.
At this point you are probably asking what this has got to do with
investing.
More than you think. But more on that later.
Earlier
this month I came across an insightful blog post on forecasting by
Jonathan Davis.
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During my recent visit to South Africa my dad asked for help with his finances.
What I, at first thought will be easy, turned out the be very difficult.
My
father turns 74 this year, is retired and thus lives off his
investments. His investments are quite liquid at the moment and his
questions were mostly about how much money to allocate to what asset
classes i.e. bonds, equities and how much cash to hold.
Personally
I have not given the matter a lot of thought as when I am not invested
in shares I hold cash. But with me at turning 43 this year I still have
quite a long working life ahead of me to make up for any substantial
losses.
When thinking about my fathers asset allocation my thinking went more to ask if he should have any shares at all.
But
the biggest risk my father, and all of us face, is inflation. Because
none of us know how long we will live. It is really quite frustrating
not knowing this because it makes planning so difficult but knowing
that may cause more problems than it solves...
I am still doing research and will let you know what I will recommend to my dad.
I have found a great source of high quality articles that has been very helpful.
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This weeks newsletter is an article by Tim Price, Director of Investment at PFP Wealth Management in London.
You may remember that I have already sent you an article written by Tim called Hitting it out of the park
which showed how investors routinely overpay for growth
companies (companies with high growth expectations), relative to value
companies (companies with poor growth expectations) usually to the
detriment of their investment performance.
Take a minute to read the article if you missed it. Its worth five minutes of your time.
Getting back to Tim.
As
I mentioned in the previous post Tim is one of the few market
professionals that gives his true opinion of the market. Unlike the
bulk of investment commentators that have never seen a market they
did not like.
On to Tim's article (emphasis mine)
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Investing, in its simplest form is about finding investment ideas, analysing companies and making decisions.
Your investment returns can thus be increased by improving any one of the three activities.
In this article I want to give you some ideas on how to improve your decision making. It is something I started a few years ago that has helped me immensely.
Give
it a try. It may not
only, improve your your investment returns but other areas of your life as well.
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