Keys to Successful Investing

Keys to Successful Investing

What is the key to long term successful investing?

The key to investing is not about trying to beat a market index. It is not about which combination of investment styles you choose (growth or value). It is not about buy and hold strategies or periodic rebalancing of your asset allocation. It is not about which securities you buy. The key to successful investing is all about risk management. There are plenty of opportunities to make money in the markets. Successful investing requires one to manage volatility and to avoid large declines during difficult market cycles.

The S&P 500 Index closed at 1115.10 on 4/14/1998 and closed at 1115.70 on 12/31/2009! Most investors have suffered through almost twelve years of market volatility to make no money. In fact, many investors actually lost money.

By now it should be clear, traditional investment strategies require either a bull market or luck to have any meaningful chance at success.

  • Traditional strategies attempt to manage future risk by using historical data and bell curve probabilities. They assume “normal” or “average” market behavior.
  • During the 2000’s, unexpected and unprecedented events have been anything but “normal” or “average.”
  • Traditional asset allocation and rebalancing, as well as most diversification strategies failed to effectively manage risk during volatile markets of the 2000s.
  • When risk management fails, there is little or no chance to be successful.

It has been said; the definition of insanity is doing the same things and hoping for a different result. Experienced portfolio managers are questioning and discarding many of Wall Street’s old theories and methods.

Today, revolutionary tools and processes can potentially benefit from market volatility and declining markets. Access to smart programmers and a high level of computing power have made it possible to develop risk management tools and systems, like Canterbury’s Portfolio Thermostat.

"The key to successful investing" requires one to have the ability to manage negative market events and turn them into opportunities. View our ideal client profile.