How to Invest in Difficult Markets
May 17, 2001
Presented by: Ronald R Redfield CPA, PFS
I. Investing in this difficult environment is not much different than a raging bull market. The only difference should be slight changes in allocations between Fixed Income and Common Stocks.
II. Two major factors in designing a portfolio (the first step).
A. Risk Tolerance.
B. Time frame allotted for investment.
III. Some Golden Rules of Investing
A. Use an informal allocation. Understand that allocation levels will sometimes change for various reasons.
B. Always leave room for Fixed Income. Understand that Fixed Income investing uses principles of Credit Quality, interest rate environments, and length of investment. Understand that Fixed Income investing does fluctuate and understand reasons for fluctuation.
C. Common Stock Investing
1. Choose a style. We at Redfield, Blonsky & Co. practice the art of Value investing and GARP (Growth at a Reasonable Price).
2. Patience is required for common stock investing. (We ask our clients to use at least a 3 year horizon and preferably a 5 year horizon)
3. Don’t be fooled or blinded by the crutch of long term investing. If you bought Cisco and Lucent a year ago, (and most investors did!!!) there is a good chance you will never recover your principal (hence the importance of diversification). Basically an investor needs to be patient, but also needs to evaluate if an investment was a potential mistake.
4. Always look forward, never look back.
D. How should you work with an investment manager
1. Keep in touch often. You should speak with your advisor at least twice a year. Don’t ever be concerned with frequent calls to your advisor. Look for your advisor to lay it on the line. You most certainly do not want your advisor to sugar coat negative events.
2. A teamwork approach to investing is essential. Vocalize or write down your desires and concerns with your advisor. Do not ever be concerned with asking to many questions. A good advisor will understand that your financial livelihood is in their hands.