Investment Principles

Intelligent Investment Management …

is when an investor makes rational decisions based on fundamental principles, instead of making emotional decisions based on the daily news - and the hype and hope which accompany it.

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The "Game of the Stock Market" distracts most people from making money in "The Business of Investing.": • The Game of the Stock Market versus the Business of Investing
Most investors should have a time horizon of at least three years, the minimum time for long-term dynamics to come into play.: • The Basics of Investing; • What is Risk?
The climate for investing is heavily influenced by levels of inflation and interest rates — and it can change fairly rapidly.: • The Basics of Investing; • Investing and Farming: Know the Climate
Whether stocks run up or down 30 points today is no more important than whether or not we get a half-inch of rain.: • Investing and Farming: Know the Climate
You can turn a good company into a bad investment by paying too much for it.: • What Is Risk?
Investment risk should not be measured by volatility, but by the loss of purchasing power due to taxes, inflation, and paying too much for an asset.: • The Basics of Investing; • What Is Risk?
If you want to get rid of the risk of volatility, don’t price your portfolio so often.: • The Basics of Investing; • What Is Risk?
The people who say you should own some of each investment “for diversity” are really telling you they don’t know how to judge a good investment from a bad one.: • Diversification – Too Much of a Good Thing
Retirees don’t need income from their principal; they need spending money from their assets.: • Problems with Investing for Income
Corporate stocks provide higher returns than corporate bonds because the company’s management works for the stockholder and against the bondholder.: • The Basics of Investing; • What Is Risk? (Part 2)
Few politicians seem to understand that taxing the employer is not conducive to creating jobs.: • Prosperity
If on Friday you had to pay 50% taxes on your earnings, would you come to work? Most people say “no.” Clearly, you can tax away work incentive.: • Prosperity
One major function of recession is to reevaluate and reappraise those areas where prices have gotten most out of line with economic reality.: • The More Things Change, the More They Stay the Same
We have seen any number of astute business people who manage their companies for long-term real growth in value, but manage their pension funds by criteria that are short-term and artificial.: • What Is Risk?
Contrary to popular opinion, only governments can create inflation because only governments can print money.: • The Inflation Time Bomb
Only those returns in excess of inflation can be spent if purchasing power is to be maintained over long periods of time.: • The Basics of Investing; • Defusing the Inflation Time Bomb
In nearly all cases, the quality of a company’s management is more important than the characteristics of the industry they are in.: • Fund Your IRA Every Year – or How to Retire Wealthy by Driving Used Cars
Clearly, you can tax away work incentive.: • Economics and Why Election 2000 Is Important
Many financial planners use Style Boxes to ensure diversification. What’s missing is an appreciation that Style Boxes were meant to descriptive – not restrictive.: • How Much Money Are You Willing to Lose for a Theory?
The economy is not strengthened by spending – it is strengthened by investment.: • Muhlenkamp’s Musings on Economics
Our federal government sets standards and weights so that no merchant can cheat you on a pound of sugar or a gallon of gas. But it sets no standard on the purchasing power of money, allowing it to cheat you out of the value of your savings.: • The Basics of Investing; • The Inflation Time Bomb
Wall Street’s definition of risk is volatility. We believe most people’s definition of risk is the probability of losing money.: • The Basics of Investing; • Defusing the Inflation Time Bomb
The big risk in stock investing is not volatility; it’s paying too much for the company.: • What Is Risk?
An accurate assessment of the present is often the best available predictor of the future.: • This is 20/20
Don’t confuse income and wealth. Income can end with a dismissal notice or a change in interest rates.: • Basic Financial Maxims I Want My Kids to Know
Equity returns compounded over long periods can be truly amazing.: • Basic Financial Maxims I Want My Kids to Know
Contrary to popular opinion, bankers and other financial intermediaries don’t care about the level of interest rates. They work on a 2% to 4% spread.: • Why Interest Rates “Won’t Go Back Up” Any Time Soon
Focus too narrowly on short-term risks and you are vulnerable long term…Focus on long-term risks and you’ll suffer setbacks short term.: • Mom – The Squeeze on Your “Income” Will Continue
The hypocrisy is that our politicians speak of Social Security as if it were a pension plan, while continuing to operate it as just another program of taxing one person to benefit another.: • Social Security by the Numbers
Work to move your assets where the returns are high and pay off debts where the costs are high.: • Personal Finances
Most corporate and municipal bonds and corporate-preferred stocks are “callable.” This means with little or no penalty, corporations and municipalities can pay off (or “call in”) their bonds or preferreds when they choose to do so.: • Beware of Good Yields
Most stock valuation models use current interest rates and simply assume that such rates incorporate inflation.: • Are Stocks “Too High”?
Nearly everyone who has done rigorous work over any period of time assesses the values of common stocks based on current interest rates using a dividend discount model. …We use inflation plus 3% -- and it sometimes reverses the conclusions.: • The Basics of Investing
Thirty years may be only one cycle; i.e. one generation. To begin to understand something, you need to look at more than one cycle.: • Estate Planning for Generations
Two years is ample time for the markets to swing one way based on hope or fear, and then to swing the other way based on reality.: • Why Did the Fed Raise Short-Term Rates?
In a free market, the consumer is ‘king.’ If you serve the consumer by providing a product or service that he values, you can get rich.: • Competition for the Consumer
What encourages you to work overtime and produce more? Is it basic food, clothing, and shelter? Is it discretionary goods like a better car, a better house, or a better vacation? Or is it so you can pay more in taxes and the government can spend more money?: • Economics and Why Election 2000 Is Important
Beyond the determination of basic integrity and competence, the investor’s real need in choosing a money manager is to find a manager with a consistent investment philosophy that the investor is comfortable with. Consistency and comfort are the keys.: • How to Choose a Money Manager
People who hire money managers pay them a fee not only to earn a healthy return, but to do so in a fashion that allows the investor to sleep at night.: • How to Choose a Money Manager
Market capitalization, (i.e. company size), is irrelevant to investing.: • How Much Money Are You Willing to Lose for a Theory?
Whenever people say stocks are underpriced or overpriced, they need to finish the sentence. They are really saying stocks are underpriced or overpriced relative to bonds.: • The Basics of Investing
The maxim “spend the income – don’t touch the principal” is a trap.: • The Inflation Time Bomb
Politicians believe they can spend our money more wisely than we can.: • Economics and Why Election 2000 Is Important...
When the investment climate changes, it changes everything – certainly everything valued in money. You don’t have to predict this, but you do have to recognize it.: • The Basics of Investing
In a depression, you don’t care about the return on your money -- you care about the return of your money. If you think we’re in a depression, don’t own anything but Treasury bonds.: • The Basics of Investing
People are willing to wait six or nine months to get a good price for their house, but if their stocks drop they panic – as if the price meant something. All it means is that, today, somebody is giving you a lowball bid.: • The Basics of Investing
The trouble with government spending is that the government doesn’t have any money. Every dollar spent by the government must be raised—either through taxes or through borrowing.: • The Trouble With Government Spending; • The Trouble With Government Spending: 2011 Update