The Russian-American novelist and philosopher Ayn Rand argues that all of us have a philosophy of life. Likewise, when it comes to investing, I think it's really good to know what you believe and how you know it to be true. Successful investing requires a unique blend of attributes and ideas. A humble spirit, for example, allows investors to learn from their own mistakes and also from others.
"I'm not proud," veteran investor Jim Rogers once shared with me candidly. "I try to buy anything I can find which is low, where positive changes are ahead." Of late I've been doing some soul searching about my own investment approach.
Having invested for years, I would stress the importance of having a philosophy. It's like the rudder on a ship that has to stand up to the test in both calm seas and choppy conditions. Without a guiding compass, you will be switching aimlessly from one investment strategy to another.
As I contemplate a move into the investment management field after my Master's in Finance from London Business School, it's important for me to be able to articulate coherently my core set of beliefs and the way I think about markets and how they work.
If you read the writings of the investment greats, you detect deep philosophical and methodological differences in the likes of Buffett, Templeton and Lynch. For example, Peter Lynch and T. Rowe Price both invested in growth companies, but they also approached the market in subtly different ways.
Price focused on well-managed companies in fertile fields, whose earnings were expected to grow faster than inflation and the overall economy. Discipline and process consistency drove his investment philosophy. Fidelity legend Peter Lynch sought out "multi-baggers," but he also pioneered a hybrid of growth and value investing, or what is referred to as a "growth at a reasonable price" strategy.
I've heard some job seekers say that one should be flexible when choosing which investment management firm to apply to. They favor carpet-bombing resumes to as many firms as possible and argue that one can simply blend one's investment beliefs with those of the new employer.
I see their reasoning given this moribund employment market, but this is where I channel Ayn Rand: your philosophy is either conscious, explicit, rational and practical, or it is unconscious, random, unidentified and, therefore, impractical. Suppose your investment philosophy is radically different from that of your target firm-won't you be miserable? After all, how much can you compromise, given your objectives, tolerance to risk and personal characteristics?
This article first appeared on our UK site, but applies here as well.
What's your investment philosophy? Feel free to comment below.