Nine principles for optimal wealth management.
Predictions are often overrated as a guide to investing successfully, and the key principles of successful investors are mostly underrated. That is why it's worth restating these principles for a successful investment strategy on the stock market.
Nine principles for a successful investment strategy
1. Markets are extremely efficient
Knowledge of the markets should not be underestimated. And even though dissenting opinions sometimes hit the mark, basically the following applies: When it comes to investments, modesty not arrogance is a better guarantor of happiness. In other words, "prepare, don't predict." This means that successful wealth management is based on thorough preparation and not on predictions.
2. There are no universal investment rules
People who look for a single key to success on the financial markets will search in vain: It doesn't exist. Because markets consist of people, and they follow their instincts, their knowledge, and their expectations. Of course, there are also rules. But valuations are often based on a subjective point of view. In short, over the long term, markets create an equilibrium based on profits, balance sheets, valuations, and expectations, but in the short term everything revolves around the question as to whether buyers or sellers prevail on a given day.
3. The best time to invest is now
Many investors spend too much time on finding the best day to invest. But in efficient markets they can relax in the knowledge that the issue about when they enter the market decreases in significance as their time horizon expands. And one thing is certain: holding cash does not pay off at present.
4. Performance comes from what you have
Around 80% of investment success stems from choosing the right strategy, not from the right tactics. The things that matter in the long term are patience and a suitable investment strategy in particular. By contrast, realizing gains prematurely is perhaps one of the most common psychological traps for investors. Rather, they should feel free to let their winners work for them and not hesitate to dispose of losers in a dispassionate way.
5. Bull markets arise from panic
Bull markets grow out of the last bear market – and regularly die out in one of three typical bull traps: through recession, inflation, or euphoria. At present, it appears unlikely that there will be another recession or inflation. We have just been through the former, and its aftereffects remain deflationary for the time being. It seems more plausible that the current bull market will come to an end one day through collective exaggeration, in other words euphoria.
6. Good risk management consists of clear rules
Organized processes are crucial when investing in turbulent times. There are periods when objectively defined loss tolerance is required rather than subjective market assessments. That is why there should be clear, simple rules for difficult days, never rules that are complicated or confusing.
7. Strong processes are the secret of successful investors
The best way to stop yourself from getting into difficulty in the first place is to have a strong investment process. Because good processes benefit from the strengths of everyone involved, automatically provide a balance of opinions, diversify, and protect investors from themselves or, to be precise, from their own psychological weaknesses.
8. Swimming against the tide can be worthwhile
Anticyclical investing is the goal of many investors. They want to buy low when everyone is selling, and, vice versa, sell high when there is a lot of demand. But the reality is often different, which is why experience, methodology, and judgment, which then underpin a good investment process, are so important. Because there are good return opportunities that people should grasp, especially when the central banks flood the markets with liquidity. But there are also times when it's smart to swim against the tide, for example when the market is gripped by panic or euphoria.
9. In the end, it's people that count
Wealth management is by no means as dull as some may think. Markets are influenced by people and processes rarely run like clockwork. Psychological and interpersonal factors are often more challenging than hard facts.
And the yardstick for success – is it really objective? Or sometimes subjective after all, perhaps? Is the purchase of a property only a success if its value increases? Or aren't there other yardsticks? For many people, the yardstick for "value" is subjective. Is it only the performance of a safekeeping account in one tax year that counts? Or does social impact count too? Should value and performance be measured over longer periods of time? The start of a new year is a good time for such questions.