[Investment and Financial Management and Confidence] 4
How to plan the investment process?
Translated by Qiu Lihua
Is your investment process like the little boy in the photo - diving, but at a loss, so he pinches his nose and takes off, hoping for the best outcome? When ordinary people make investments, they always seem to spend a lot of time chasing the waves. As a result, they are either busy jumping out of the sinking ship or jumping to rash conclusions.
The most common question people ask when investing is: Where will the market go tomorrow? However, this question is more about guesswork than solid planning. Why do people spend so much time trying to predict the future but so little time seriously considering their decision-making process? If you want to plan a personal investment process for yourself in the next seven days, then please start praying to God and follow these steps:
▲Is your investment process like the little boy in the photo - diving but at a loss, so he pinches his nose and jumps, hoping for the best outcome?
Day 1: Seek a vision, not a fortune teller
Look for visions that are in line with the pulse of the times, and don’t try to predict future investment trends. If you have faith in your vision, you will feel confident when investing. For example, our vision over the past ten years has been:
"We are experiencing a global communications renaissance, bringing about incredible changes and sometimes longing for a safe zone. This renaissance has also greatly increased the number of middle classes in developing countries and brought them a lot of wealth. Chance."
This vision led us to consider nascent emerging markets, technology companies, and unpopular commodities, as well as their instability and government intervention.
Questions and Answers:In your vision, what was the catalyst for change in the last decade? What are the financial opportunities and unexpected consequences if your vision turns out to be correct?
Day Two: Rely on Wisdom—Don’t Be Swayed by Daily Distractions
In today's world, financial information abounds, leaving many people confused and overwhelmed. You might be surprised to learn how many people can influence your financial decisions. Since you don't want to hear different religions talking to you every day, why should you allow this phenomenon to appear in your finances? To ensure that your decisions don't go astray, you need to carefully select the forces that influence your decisions, absorb all the information, and try to discern which information is true. At the same time, weighing opposing viewpoints, or drawing a decision diagram, or performing a probability analysis of different outcomes can be helpful in making the right decision.
Operation:Use a chart to list the people, publications, websites, TV/radio programs, and books that may influence your investment decisions. Do you understand their perspective and role (yes/no)? Do they inspire you or provide you with healthy challenges (yes/no)?
Day 3: Learn how to jump in that works best for you – don’t just jump for the sake of jumping
Many people have had some great investment ideas in their lives. Unfortunately, very few people put these ideas into action. When investing, it's best to get to the bottom of things and figure everything out; and it's important to jump in using a research method that's comfortable and reliable. Our favorite method is to compare current quantitative data for an investment with corresponding quantitative data from alternative investments and past history.
Questions and Answers:How do you make investment decisions? Which research method do you prefer: macroeconomics, quantitative analysis, fundamental methods, technical analysis, or other methods? What investment ideas would you like to explore in more depth?
Day 4: Develop an allocation plan - don’t expect the market to allocate it for you
1. Establish a target average return and annual downside risk range.
2. Choose a general benchmark (i.e. the stock market) that has the potential to be closest to your target return.
3. Pick your beta - a measure of predicted downside risk relative to your benchmark. For example, if your predetermined annual loss target is 20%, and you assume that the stock market may decline by 50%, then your expected beta coefficient relative to the stock market is 0.4 (=0.8×0.5).
4. Diversify asset classes based on individual circumstances: including cash, alternative assets (i.e. gold, commodities, real estate), bonds and stocks.
5. Aim to include at least seven to eight areas in your portfolio, depending on your circumstances. This idea of diversification is also implicit in the book of Ecclesiastes.
6. Once you complete your basic asset allocation plan, regularly adjust the plan based on the current market conditions; record your analysis of the market conditions and explain the reasons why you adopt an offensive or defensive strategy for each type of asset.
7. Choose a personal investment plan that represents your diversified investment philosophy.
Day 5: Screen investments – don’t just pick the latest winner
Review your personal investment plan and ask yourself: Is it
1. Does it fit your vision?
2. Meet your portfolio needs?
3. Meet the standards of ethics and good stewardship?
4. Achieve high quality in all aspects of stability, scale and credibility?
5. Have experienced and talented managers?
6. Provide attractive relative valuation?
7. Did it surprise or scare you?
Day 6: Develop a maintenance plan - be careful not to pursue a return on investment that exceeds your risk tolerance
One of the main causes of investment disappointment is the desire for investment returns that exceed the risk level one is willing to bear. You can check the beta coefficient derived from the correlation coefficients between various investment projects through financial management websites. Properly maintain your own financial planning to make it possible to increase your returns. Seek help from a financial advisor on how to maintain your investment portfolio and protect your wealth. Ask questions like: Are our investments coordinated with tax planning? Have parents/children been taken into consideration in the investment plan being formulated?
Day 7: Enjoy your rest – don’t overwork your investment plan
Learn how to take action before the market moves so you can avoid being swayed by daily distractions; start taking investment notes, write down your investment plan, and jot down your thoughts along the way - this will strengthen your investment confidence and firmness Stick to your choice. Schedule several meetings with your family or financial advisor throughout the year to review your investment plans and make appropriate decisions.
We’d love to hear about your progress on this…
Please email: Eric@visioncapitalmgt.com
May your vision come true! May you enjoy peace!
Author profile
Eric and Mary Vogen both work at Vision Capital & Management. Eric is the founder and CEO of the company, has a master's degree in business, holds a financial planner (CFP) certificate, and has more than 20 years of practical experience in securities investment.
Translator profile
Qiu Lihua, from mainland China, once taught in the foreign language department of the university. Now living in Southern California, USA, he has served at Clear Spring Valley Christian Church for many years. She and her husband have three sons. Like all good things.