Four Key Concepts for Investment Success

 It is my belief that there are four key concepts which you need to think about for consistent investment success:

(1)    You will need to understand a little about human psychology as it relates to investment decisions…

(2)    You must be able to perform basic “top down” analysis:  That is to say, work out big themes which help you to asset allocate most effectively.  (To to this requires a basic grasp of current affairs, economics and economic history)…

(3)    You will need to be able to perform basic “bottom up” analysis to chose specific assets and make sure you buy them at the right price.  (To do this you will need to gain a basic understanding of both fundamental and technical analysis). We will look at what these are shortly…

(4)    You will need to arrange your financial affairs with various third parties so that:

1. …you are able to invest cheaply in all the main asset classes…
2. …you receive a constant stream of possible investment ideas…

If you can get moderately up to speed on these four things you have a very good chance of making returns in advance of many professional investors and of what many people think is possible.

I would argue that relatively few people are up to speed on all four of these, including many finance professionals for the sorts of reasons I have highlighted in an earlier blog entry.  Largely as a function of human nature, many professional and private investors fall down on one or more of these ways of thinking about investment.

It is a relatively rare person who thinks explicitly about human psychology, has a basic grasp of economics and economic history, follows current affairs, respects and has at least a basic understanding of both fundamental and technical analysis and, in addition, knows how to arrange their affairs to be able to invest in all major asset classes in a cost effective fashion.  If you really want to “take things further” you should aim to become one of them.

Getting up to speed on these key concepts may seem like a tall order.  You might be reading the above and thought that you are not even familiar with what some of it means.  Nevertheless, it is not as out of reach as you might think.  If you are willing to make the effort to focus your attention on the most important information you can give yourself a good chance of being in a small minority of investors in the world who have taken account of all four of the above key concepts and given themselves the best chance of making money on their money as a result.

So let us deal with each of these concepts and the resources you might consider to get you up to speed on them.

Click here to read about our first concept:  The importance of human psychology…