By Ed Maass The Pineapple Staff Writer “Find an outstanding business at a sensible price, not a mediocre business at a bargain price.” -Warren Buffet Investing is a bit like the game of baseball in that past performance does not guarantee future results. Last year’s World Series champs could finish this year somewhere in the cellar. The same can also hold true for last year’s performers in the investment market. Just because something was…doesn’t mean it still is or will be. Many investors look at what was hot last year, last month, and unfortunately have the crazy notion they can determine when the next big hit or home run will be. In doing so they swing for the fences to hit home runs, and more often than not, whiff and strike out. While home runs are certainly nice and welcome at anytime, the heart of the game of baseball, as well as investing, is won on the back of singles and doubles, along with game strategy implemented by the team manager. Now I can’t do anything about your baseball skills, but I can pass along a few nuggets of investment information gleaned over the past 30 years that just might make a difference for you. If you want to be a successful investor – a person who accumulates and protects their assets throughout the years – then you need to choose your investments (players) carefully and make sure you, as the owner, are on the same page with your manager. Whether investing in real estate, stocks, bonds, or alternatives you need to have patience, choose quality over price, and focus on solid singles and doubles, for this is how the game is won. You may have heard the baseball term that you can’t steal second base with your foot on first, which equates to: no risk, no reward. However, it should be noted that you can’t be thrown out if your foot is firmly on the bag. So the question becomes how much risk is one willing to take in order to achieve the underlying goal, and only you can answer that for yourself. Here are a few nuggets I hope you find helpful.
- Equity (stock) markets have moved up rather significantly these past several months and many are concerned (rightfully so) that a reasonable decline (pullback) of five to ten percent or more is coming. Will this happen? Yes. When will it happen? Neither I nor anyone else on planet Earth knows the answer to that question. However, experience has taught us that when you are unsure about the markets there is nothing wrong in simply building a cash hoard to be invested at a more opportune time. Yes, I know your saying to yourself that cash positions mean lackluster returns, making little to nothing in the portfolio. However, cash positions also prevent gut wrenching losses. Please note, I am a true proponent of equity (stock) investing, and over the long term know that equities offer the greatest return. However, looking at the current issues of the world and the recent markets rise, it is my opinion that taking a “wait and see” approach may currently serve you best. Being a conservative investor may go against the grain of many a stockbroker, but I think the return of your money should not be forsaken for the return on your money.
- If and when you are ready to invest, look to do so in quality dividend-paying stocks. Not only do you receive a dividend that may range from two to five percent, you also have the potential for additional capital appreciation (although No Guarantees).
- When looking at the stock of a company for investment purposes, look at companies that generate high returns on equity. These particular companies pay off their shareholders handsomely and create substantial assets for each dollar invested. This is known as ROE (or return on shareholder’s equity), and it provides an indication of a company’s ability to increase its earnings per share, and thus the quality of its stock.
In closing, I believe that a baseball team is only as good as its players and manager, along with a bit of Lady Luck. I also believe that your investment portfolio is only as good as its holdings, along with the person providing guidance, and yes…. a bit of Lady Luck. Ed Maass is a Certified Financial Planner, Chartered Financial Consultant, and Chartered Life Underwriter. Located in Downtown Delray Beach, you can contact him directly at 561-272-0663, or by email at Ed@physicianswealthcare.com