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Six precepts every investor should remember

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Well - that has ruined my day. No more blog, no more column.................

Thank you for all the years of great articles.

One thing that you might be interested in before you wind up is to go out and buy / borrow "Breaking Their Chains - Mary Macarthur and the Chainmakers's strike of 1910".

Mary Macarthur stood for parliament and the book contains her election address. What got me was that you could read it out today - the issues then are the issues now. OK maybe not "Item 10 Security for allotment holders".

It is over a 100 years since she stood up and read that address - I think it shows a grand failure of the politicians, or maybe us.........


Your number 3 - risk is not volatility, but loss of capital is absolutely one of the most important precepts - and counters the whole mathematics of Modern Portfolio Theory which defines risk as volatility. But your conclusion about holding bonds and cash is erroneous. Three ways to lose capital in equities: buy garbage (ie speculate); pay too much - as you state; and chickening out and selling high quality holdings at less than their real value because of market angst or because of poor cash-flow planning.

Avoiding these is the real way to avoid risk! not squandering some of your wealth in asset classes with minimal returns - and BTW - bonds can be overpriced and lousy quality too, so the same rules need to apply.


Thanks for this easy to understand article. A similar text should be a compulsory note for financial products targeted towards consumers.


Your best investment is your happiness and a beter yourself - your children, that is.
At a minimum, train them kids to compete successfully with the clowns of politics and money.
It will be your kids, not shiny stones or government's modest checks, that will provide you with joy and meaning.


The tragedy of my (Baby Boomer) generation is that most of my peers seem to have assumed that someone else (Social Security, company pension, etc.) would take care of their retirement. Now, they are finding that, when you change jobs every few years, you never vest in the retirement plan of even those companies which had one. If you just took the default for the company 401(k), you don't get much from that either. And Social Security by itself won't even guarantee that you don't end up living on the street.
It didn't have to be that way. Most of us** earned plenty; we could have invested all along, and be in OK shape. But way too many never bothered -- a fancier vacation was just so much more attractive. Now, the price for "living for today" is coming due. And, wonder of wonders, the next generations are unenthused about the prospect of making up for our profligacy.
** Certainly there are also a lot of folks who never did make enough to save. But I'm talking here about the majority, who could have but didn't.

ashbird in reply to jouris

Many are swept up by the tide of "keeping up with the Jones", a very sad psychosocial development. The tide drowns many who go with it without any thought to consequences. Borrowing at 19% interest rate just to continue to feed in the belief that bigger is better and more is more in consumer spending is a bottomless temptation. Many "things" are not even needed except Madison Avenue convinces us we do.

Vindicator1 in reply to jouris

It's always sound advice to watch your money, but another factor is life and longevity. You can hunker down, work hard and do little else. Retirement time comes, your flush with cash and free, then boom your dead. Statistics on lifespan are solid, but this does not guarantee you will be one of the ones on the good side of the curve.
I witnessed just recently a co-worker work to 72 as a goal, go to retirement, then 6 months later (early this year) was dead. The signs of deteriorating health were there, but he just chose to ignore them because his family had superior genetics. Unfortunately, he seemed to have missed out on the genetics (and fate) lottery.
The approach to life must be the same as investing. Diversify your life goals a bit. Live a bit today and be ready for the future. Find a balance that works for you.

Ed Zimmer

I so agree with each of your 6 precepts! They're what I learned from Jack Bogle so many years ago (that have served me so very well) - and they can't be affirmed more often. I'm sorry to see Buttonwood's notebook go - yours and Free Exchange are my two must-read articles on TE. I'll be looking forward to your new assignment.

Ed Zimmer in reply to jouris

I read his 1st paragraph phrase "before heading off to a new Economist beat", as meaning he'll be staying with TE but with new assignment. I'd hate to see him leave TE as (IMO) he is one of their better (clearer) writers.