Investing and finance statements: 4-12-2010
“With inflation and interest rates low and on the rise as well as dividend yields most likely investors will not see investment returns that they have grown accustomed to over the past 20 years, at least not until valuations revert to or beyond their mean. This is going to make it difficult for retiring investors to buy and hold stocks for the “long term” as the long term is most likely longer than their current life span.
Therefore, capital preservation will still be key for the decade at least while generating total returns in the form of stock dividends and interest from bonds as well as returns from non?traditional asset classes will define the difference from investing success and failure. In fact the entire basis of our investment philosophy can be summed up by a quote from Robert Rubin;
“As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.
If there are no absolutes, then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.”
It should be obvious that an honest assessment of uncertainty leads to better decisions, but the benefits of Rubin’s approach go beyond that. For starters, although it may seem contradictory, embracing uncertainty reduces risk while denial increases it. Another benefit of acknowledged uncertainty is it keeps you honest. “A healthy respect for uncertainty and focus on probability drives you never to be satisfied with your conclusions. It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments and understanding that difference between certainty and likelihood can make all the difference.”
Living beyond your means statement:
“But in reality, it’s hard to reduce your own standard of living.
As long as a lifeline is available, reform is impossible. It’s just too hard to say “NO” to the forces in place for so long that have actually caused the fiscal breakdown. The easy solution is to say “YES” and continue the spendthrift, irresponsible ways that have brought many to the brink of bankruptcy. ”
The motivation for change only happens when someone stares into the eyes of his hungry children and realizes they’ll die if they don’t do something, anything, to put food on the table.