What Does Your Investment Process Look Like?

By Eric Vogen, CFP, MBA and Mary Vogen, MSOD

Is your investment process like the boy in this picture? Diving in, not sure why, and hoping for the best? When investing, people seem to spend a lot of time jumping on bandwagons, jumping off sinking ships, or jumping to conclusions.

With investing, the most common question people ask is what the markets will do tomorrow. But this question is more about speculation than about faithful planning. Actually, few people have ever asked us for help to refine their personal investment process. Why do people spend so much time trying to forecast the future, and so little time trying to figure out their decision-making process? If you would like to develop your own personal investment process over the next 7 days, start by praying and working through the following…

Day 1: Seek vision, not a fortune-teller.

Seek a vision of the times. Stop trying to predict the future of an investment trend. If you are convicted about your vision, this may give you confidence to invest. For instance, our vision over the past decade has been:

“We are experiencing a global communications renaissance which seems to be leading mind-boggling changes and, at times, a deep desire for safe places. The renaissance is also greatly expanding the number of middle class people in the developing world and catapulting their opportunities.”

This vision then guided us to consider emerging markets, technology companies, and commodities before they were popular; while also considering volatility and government intervention.

Please answer: What is your vision of the catalysts currently transforming this decade? If your vision proves correct, what would be a few financial opportunities and unintended consequences?

Day 2: Stand on wisdom—don’t be swayed by daily static.

With so much financial information available today, many people are overwhelmed and confused. You might be surprised at how many people may be influencing your financial decisions. You wouldn’t listen to many different religions each day, so why do you allow this with your finances? To keep decisions moving forward, choose your influences carefully, funnel down information, and attempt to discern what may be true. To help do this, it may be helpful to weigh opposing points of view, or create decision trees, or set probabilities of various outcomes.

To Do: Make a chart of the people, magazines, web-sites, TV/radio programs, and books, which may be influencing your investment decisions. Do you understand their philosophies & processes (Yes/No)? Do they inspire you with courage or challenge you in a good way (Yes/No)?

Day 3: Learn the best way for you to dive in—don’t just jump.

Many people have some great investment ideas in their lifetimes. Unfortunately, few people act upon these ideas. With investing, it’s good to turn over rocks to see what is underneath, and it’s also important to dive in with a research approach you’re comfortable with and which stays consistent. Our favorite approach is to compare an investment’s current quantitative numbers relative to its alternatives and to its historical comparisons.

Please answer: How do you make investment decisions? Which research approaches do you enjoy: macro-economic, quantitative, fundamental, technical analysis, or other? What investment ideas would you enjoy exploring further?

Day 4: Create an allocation plan—and don’t plan for the markets to help you.

1. Set targets for an average percentage returns and an annual downside risk.
2. Choose a general benchmark (i.e. stock market) which has a potential return closest to your targets.
3. Select your beta; which is the predicted downside percentage movement verses your benchmark. For instance, if you said 20% is your annual downside target and you assume that the stock market can go down 50%, then; you may desire a .4 beta verses the stock market.
4. Depending on your individual situation, you may want to diversify between different types of asset classes: cash, alternatives (i.e. gold-commodities-real estate), bonds, and stocks.
5. Depending on your individual situation, you may want to divide your portfolio between at least 7 or 8 areas. Ecclesiastes implies this type of diversification.
6. Once you have your basic allocation, you may want to periodically adjust for current market conditions. Keep a journal of how you see the market conditions. Write down why you may be on offense or defense for each asset class.
7. Select the individual investments which may best represent your diversification choices.

Day 5: Screen your investments— don’t just choose the latest winner.

Screen your individual investments by asking if it may …

1. Meet your vision?
2. Fulfill a need in your portfolio?
3. Meet ethical and stewardship standards?
4. Exhibit quality through stability, scale, and reputation?
5. Have experienced talented management?
6. Offer attractive relative valuation?
7. Give you a good or bad surprise?

Day 6: Develop a maintenance plan—and be careful not to covet returns which are greater than your risk tolerance.

One of the leading causes for investment disappointment is coveting a higher investment return than the level of risk the person is willing to take. Through financial web sites you can target the beta derived from the correlation between your different investment holdings. Proper maintenance of your finances can potentially enhance your returns. Ask your advisors for help in maintaining your portfolios and preserving your wealth. Ask such questions as: Are our investments coordinated with our tax planning? Have we developed a plan coordinating our investment plan with our parents and/or children?

Day 7: Enjoy rest—don’t overwork your investments.

Know how you may act before the markets move so you are not swayed by daily volatility. Start an investment journal. Start by writing out your investment plan and keep track of your thoughts along the way so that you may have confidence to hold steadfast in your choices. Set a few meeting dates for the year to review plans and make decisions with your family and advisors.

We’d enjoy hearing about the progress you’re making…
[email protected]

May your visions shine and may you be granted peace!

Eric & Mary

Disclosures: Securities offered through FSC Securities Corporation, member FINRA/SIPC. Advisory
Services offered through Vision Capital & Management, a registered investment adviser, which
is independent of FSC Securities Corporation, 108 S. Main St, Suite E, Davidson, NC 28036, P
704-894-9639, F 704-894-9639. The views expressed are not necessarily the opinion of FSC
Securities Corporation, and should not be construed directly or indirectly, as an offer to buy
and sell securities mentioned herein. Investing is subject to risks including loss of principal
invested. No strategy can assure a profit nor protect against loss. Investing involves risks in
regards to all of the investment products mentioned in this article, including the potential
loss of principal. With any investment vehicle, past performance is not a guarantee of future
results. There is no guarantee that a diversified portfolio will outperform a non-diversified
portfolio in any given market environment. Periodic investment plans do not assure a profit
or protect against a loss in declining markets. Such plans involve continuous investment in
securities regardless of fluctuating price levels. Investors should consider their financial ability
to continue purchases through periods of low price levels. Technical Analysis is based on the
study of historical price movements and past trend patterns. There is no assurance that these
movement or trends can or will be duplicated in the near future. It logically follows that
historical precedent does not guarantee future results. Conclusions expressed in the TA section
are personal opinions and may not be construed as recommendations to buy or sell anything.
There is no guarantee that the suggestions made in this article will achieve the desired
result. This is not a substitute for professional advice. Please consult a financial professional
before making any investment decisions.