As you do your research. As you read the investment books, newsletters, magazines, articles, and listen to the tapes and go to the seminars, etc. you will learn something from each one. Just be careful to process what you hear, read, see within the context of your own personal plan and within the context of what your responsibility is as a steward/manager of God’s money. I think you will discover that all of the “professionals” have some kind of system, or methodology, or philosophy, or model that they follow to determine which investment opportunities to take advantage of. I doubt any are throwing darts at the wall to make investment choices. They want to do the best they can. If you have hired one of them, you want them to do well. And God demands it.
It has been my observation that these different methods or philosophies tend to fall into one of three groups.
- Long Term Investors. This philosophy says do your homework well. Study the history of performance over the long term. Look at long term results: 3 years, 5 years, 10 years, since inception of the fund or stock. Data of this nature are available. There are measures of risk and volatility. There are charts and graphs. There are commentaries that discuss various management philosophies of the different firms and funds. The idea here is to pick a strong, solid, sound, well managed, successful fund or firm and invest with the idea of leaving money invested for many, many years. You realize that there may be times when the fund or firm may struggle but its long term performance has been such that you can expect the same in the future. Now, having said that, whenever you see or hear about past performance of a firm or fund there is an accompanying disclaimer. The disclaimer says past results are not a guarantee of future performance. Certainly that is true but you hope your research will pay off and that good performance WILL continue. You are invested for the long haul.
- Market Timers. You remember the chart showing performance of the S & P 500 from a couple weeks ago. Market timers try and predict when market highs and lows will occur in the future. When the market reaches a point at which it is considered to be a high, the market timer sells all his/her investments and puts the money in a low interest earning savings account or money market account or fund and waits until the market reaches a low point and begins to turn upward. When the low point is reached the market timer reinvests the money he/she has been holding. This is a wonderful idea and philosophy if you can pick the high and low points in the market. Unfortunately not many people are very good at this.
- Short Term Investing. I’m not sure that’s the right name for this philosophy but I can’t think of a better one at the moment. This philosophy says to look for firms or funds that are performing well right now. That is, how have they done in the last month, or 3 months, or 6, or 9, or 12 months? You see already that this is going to take some research time even though these data are readily available. The problem is not that the data are not available; the problem is that there are upwards of 15,000 firms and/or funds to choose from. Analyzing the data for all of these choices is a real killer. This is where you might want to spend a little money as a do-it-yourselfer for someone else to do some analyzing and sorting for you. There are firms that specialize in this kind of analysis. What you do is choose a stock or fund that is performing well right now (according to some set of rules you decide on) and stick with it until its performance drops below some predetermined level. Then you sell and look for a new recent “hot” performer and start the process all over again. I have used all three of these methods at one time or another over the years and have had successes and failures using each.
Which one of these is the best philosophy? Actually, all three methods work well (or not). Remember only one person knows what our chart from a couple weeks ago is going to look like next week, or next month, or next year.
Whatever you decide to do about investing the surplus God has entrusted to your care, you need to be cautious about two things.
1. Opportunities Too Good To Be True. You know the old saying. If it sounds/looks too good to be true, it probably is. Just be careful when you run across one of these opportunities. Make sure you understand how the generous promises are going to be fulfilled. If you don’t understand how it works, ask questions until you do. Check with a Christian brother/sister for counsel. One of my favorite verses is Prov 13:10: Through presumption comes nothing but strife, But with those who receive counsel is wisdom. (NAS) When these come along, take time to think about them, don’t act too quickly. Interestingly, my brother-in-law just now called me to ask about a super special really great/high CD rate being offered by some off shore/foreign bank I have never heard of that he learned about on the internet. The rate they are offering is way way better than just about anything else out there at the moment. I did a little research and found that it might be a legitimate offer but I would place it in the extremely high risk category. He couldn’t afford to take the risk. Even if you could afford the risk, you would never want to violate Rule #2 (below).
2. Emotion. This can really be tough. There’s so much hype out there on the internet, on TV, radio, magazines, etc. There are so many conflicting opinions on just about everything to do with investing. Do your homework, develop a written plan, decide on a methodology/strategy and stick to it. Don’t let yourself be influenced by the hype.