The approach at Albitz/Miloe & Associates, Inc. stems from our belief in seven key investment philosophies. We have seen the mistakes individual investors sometimes make; typically acting on emotions. We prefer to face these situations with a sense of calm, balance, and non-emotional bias. These philosophies have been learned over time and guide us during good times and bad.
1. Money Finds Value
Many know the price of something but not the value. There may be a huge difference between the current price and the real value of an asset or a service. If one can ascertain value, then one knows when the price of something is under or overpriced. Money flows to value like water flows to its lowest level. It might take time, but it happens.
2. Patience Is a Virtue in Investment
Good things come to those who wait. Cycles in the market provide opportunities to buy value. Often the problem is, “We all want patience, but we want it now.”
3. Portfolio Diversification Works
Spectacular returns may be obtained by putting all your eggs in one basket and watching that basket very closely. Unfortunately, if that basket drops, one can get wiped out. Think Enron. By spreading your money through different asset classes (the “don’t put all eggs in one basket” plan of action) you remove the risk of a concentrated portfolio. There are six primary asset classes: stocks, bonds, real estate, collectibles, commodities and cash. Everything else is a hybrid. Spread the portfolio into the sectors that are out of favor and rebalance when appropriate. Of course, a diversified portfolio does not assure a profit or protect against loss in a declining market.
4. Things Change
The best laid plans can change due to circumstances that are completely out of our control. Although you cannot control events, you can always control your reaction to those events.
5. Understand Risk and Your Reaction to It
Our definition of risk is simple: Risk means there is a chance that you can lose money. Most people say they understand risk, but we know if they really do when risk actually hits; and risk will hit. To get the potential for better returns, you have to take some risk. There are many different kinds: market risk, political risk, currency risk, interest rate risk, and quotational risk are several we have to deal with. There is risk with even the most conservative of portfolios. Understand risk, don’t fear it. Risk provides the potential for return.
6. Only Buy Things You Can Sell
We are more comfortable knowing we are dealing with investments that are liquid. This means there is a market to sell into if circumstances require immediate selling. Liquidity comes with a cost. Even though you can sell something, it doesn’t necessarily mean you will get the price you wanted.
7. Cash Is Not Trash
Many think that their investment portfolio always needs to be fully invested. We are not believers in that mindset. If you hold cash in an investment account, the purpose is to have money available if buying opportunities present themselves or liquidity for unforeseen events. Fully invested accounts cannot take advantage of panic selling and flash crashes. We have seen many situations where having cash made things better for our clients.