Investment Management - Part 1

Most individual investors don't think of themselves as Investment Managers. Most develop their investment portfolios by purchasing one-size-fits-all packaged products and an array of individual securities in the hope that growth will happen. Then, they compare the performance of their selections with a set of arbitrary numbers that typically are not related to the content of the portfolio. What is wrong with this picture?! You owe it to yourself to find out:

Just What is "Personal, Professional, Investment Management" All About? 

Real Investment Managers Don't Sell Products.

Investment Managers are different, and even though 99% of the financial professionals in the world think of themselves as Investment Managers, they aren't! Investment Managers are different because they neither sell packaged, one-size-fits-all, financial products, nor do they develop investment plans that some other professional is to implement.

True Investment Managers may have a role in developing an Investment Plan, but the key identifying characteristic of an Investment Manager is his or her role as a hands-on decision maker. The Investment Manager has full responsibility for the selection of every individual security that is added to the investment portfolio.

Investment Managers direct other people to execute transactions for their clients because it would be a blatant conflict of interest for any Investment Manager to earn commissions either directly or indirectly from the transactions they initiate.

Investment Managers never delegate their decision making authority. 

Still, you may find that many Investment Professionals do sell products, routinely accept commissions, recommend asset allocation formulas that fit their product mix, and advertise themselves as Investment Managers. If this is where you are, then YOU have to become the manager! 

Investment Management Must Be Goal Directed:

Managing an investment portfolio begins with the identification of what is to be accomplished... The Investment Plan. Objectives and timing will vary by individual, but it is essential that this exercise is STEP ONE!  

Typical objectives could include: creating adequate retirement income, preparing education funds, and preservation of capital. Reasonable growth in portfolio value should be expected, but it should not be a stand alone goal. If beating the market comes up as a possible goal, you can be sure of two things:

• You will be disappointed most of the time, and
• You have a lot to learn about investing.

A classic mistake made in the planning stage of most investment programs is to plug personal numbers into a standardized, and simplified financial planning computer program. Keep it personal and keep it simple...because it is!  Goals must be reasonable, and actual rates of return are absolutely not predictable!

Minimize The Risk:

Investing always involves an element of risk, and no matter how careful an investor is, losses will occasionally occur. The impact of a  loss is minimized by establishing operating guidelines and standards that are religiously applied to every investment decision. 

Rules must be established to assure: that every security is of appropriate QUALITY, that it compliments the DIVERSITY of the portfolio's content, and that it adds to the annual INCOME generated by the portfolio. 

Don't even think about saying: I don't need any more income. That's an egocentric mistake. A quality equity security proves itself by paying dividends, and a secure income base built early in the investment program (1) provides cash when profits are rare and (2) prevents a lot of panic when retirement (or unemployment) happen.