Now that we have our raw strategic position, a direction, and know how fast we want to go; and you have (hopefully) removed much of the emotion from the analysis; we can see that we truly are in a time of real opportunity. Our challenge now is to establish our investment tactics in such a way that we can exploit market conditions so to capitalise on those opportunities, while concurrently minimising our potential risks.

Surprisingly, the answer here is almost too simple, and as a result, many investors dismiss it because it seems too simple. If the market-place is volatile and difficult to predict with any reasonable certainty over the shorter-term, then ‘stagger’ your investment positions by buying across weeks, months, or even several. This way, time can be your partner, and not your enemy.

If the market drops next month, no problem… you simply buy more stock for the same investment sum. Whereas, if you had made a single investment purchase, you are now little more than a passenger on the high seas, and only able to capitalise on any price drop by finding more money to invest (gamblers call this ‘doubling-up’). If you purchased that position based on the right analysis, such a price-drop does not necessarily mean that your buying decision was originally at fault. There could be plenty of other reasons for any price drop.

This ‘staggered’ positional approach represents a significant factor in risk reduction tactics, yet you compromise little on the profit potential over the medium term. For almost all Lighthouse clients, this is the primary reason their investment accounts are doing so well. It may not be a sexy or particularly exciting approach, but it does work in all weathers!

That’s it folks ! This is the end of this Principles of Investment series. If you liked what you read, and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you

Firstly, we should accept that risk in any investment is inevitable, whether this be high or low. Much depends on your ship being capable of dealing with ever-changing sea conditions throughout your journey. A sail-boat may not get you there very fast, but it will fare much better than a speed-boat in heavy seas and storms. So be sure that your investment tactics define your market positioning, and not the other way around, else you could find your speed-boat fighting a storm it is ill-designed to survive.

You do therefore need to decide what kind of investor you actually are (and not what you wish to be):

• Speed-boat. Here, you try and ‘beat the market’; where you employ frequent buy/sell trading activity and stay close to shore, ready to dash to port at the first sign of rain. Bigger gains can be had by venturing further into deeper water and out of sight of land (but at greater risk). This takes skill, a strong stomach, and lots of time doing research. Frankly, this approach only works for about 5% of investors, and most of these are ‘professional’ investors. The other 95% invariably lose money or ‘lost at sea with all hands’.
• Fishing-boat. Here, you let the wind (the markets) define your course and compensate by buying a range of different stocks using buy-and-hold tactics. The principle here is to have a fleet of boats dropping their nets in various places. Some will find fish, and some not. Fishing boats are better equipped to survive storms, but do depend solely on their engines. Some/most of the fleet will survive a heavy storm, even if they don’t always catch or keep the fish. This works for about 20% of investors. You still need to spend a good amount of time doing your research each time, but you don’t need such a cast-iron stomach.
• Sail-boat. Here, you use the wind to propel your boat, but you have a small engine to help you if the wind is sending you off course, or the wind stops. You may not get there as quickly as you would in a speed-boat, or find as much fish as a fishing-boat, but your sail-boat is designed and equipped to survive and prosper in most storms. This works for 75% of investors because daily/hourly activity is delegated to professional investment managers (mutual funds) who have big research teams, since most investors do not have the expertise or time to try and ‘beat the market’, or the resources to have a big enough fishing fleet.

Next Friday, we’ll wrap it up with “Part 5 – How quick? Manage the risk appropriately”. If you liked this article and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you

You know where you are and have some expectations about the coming weather conditions. Should we set sail now, or tomorrow? Or should we wait until after summer has arrived?

While Part 2 could be deemed as a massive over-simplification of what is an extremely complex issue, it does at least fulfill one very important function; that of getting ourselves (as investors) to put aside emotional drivers and the multitude of opinions forced upon us – particularly those of the media. Now we can start asking ourselves the right questions – and the simpler the better. Such simple questions (and the resulting simple answers) can and should represent the starting point for investment thinking and discerning an appropriate strategy.

So, how does defining an outlook perspective help us as investors in deciding whether to be in or out of the market? If we accept those simplistic answers as being reasonable in the face of where things are ‘now’, and where we reasonably can expect things to be at a certain point in the future, it gives us a ‘direction’ that we can at least visualize and anticipate, and so make it easier to decide when to set sail. In fact, with a decent ‘meteorological report’ (our unemotional perspective), we might see that the storm we can see right now will take us far more quickly and more profitably to our destination than if we wait the few months (or years) for summer to arrive first.

Do past events support such thinking? Yes, 1997, 1987 and 1974 were clearly similar ‘events’. Yes, each was different in unique ways, but they each followed similar patterns. Each occurred after a lengthy and substantial bull-run; each suffered a massive and swift loss of confidence in the market-place; each took several years to recover; and each one did in time recover. The common thread here is that the economy and market-place is cyclical. In fact, there is no reason to believe that this present ‘down-turn’ is really much different to those that have gone before, or will come again. Once we accept this evident cyclical nature as being a normal and natural process, emotional factors and drivers are consequently much less influential on our thinking, perspective, direction, and actions.

Tomorrow, we’ll look at “Part 4 – How to get there… by sail or by engine?”. If you liked this article and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you

Once you know where you ‘are’, you need to look forward toward your destination. But first, you need to be aware of the coming weather conditions before you actually set sail. Does the economic and investment outlook for 2009 appear to be positive, neutral or negative?

Unlike in Part 1, this is altogether a much tougher question to answer because it requires us each to predict a future based upon limited – and often contradictory, information and data. Since no one person can have all the data about every element influencing the market-place at any given second of the day; any answer to such a question often depends on your perspective – or that of the person you choose to ask… If you ask a realtor in the US, or a car salesman in the UK, or a factory worker in Japan, you can guess their answers as being decidedly negative. However, if you change the time-frame (the perspective distance) of the question, say to 3-5 years, it would be reasonable to expect that their answers would be significantly different, and would most likely in fact be positive.

My point here is that outlook is driven always by the distance (in time) that you are looking. To see a positive perspective, you sometimes have to shift your line-of-sight to a time-line that offers greater certainty and predictability in line with your own opinions and observations. While shifting the time-line may seem rather convenient, it won’t necessarily change your destination, but it will help you better manage your personal expectations as an investor for that journey (which is critically important).

Next Monday, we’ll look at “Part 3 – How to get there… In or Out?”. If you liked this article and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you

Before you read this section, I should mention that you might find yourself re-starting one or both explorations several times before you gain any significant value, because it is easy to lose sight of where you started and what is, and what is not, important.X Analysis X Clients X cost-averaging X diversification X funds X Investment,

By comparison, it takes a Lighthouse consultant only about 20 minutes to complete a thorough exploration of both sections (all 4-Dimensions) with a person or couple, before he then ‘maps’ out a suitable platform or solution (the boat) and a likely navigational course (tactics and strategy) to take you comfortably to your destination.

Where are we?

Before you can chart a course, you need to know your present location right now… It would also help to know the immediate weather conditions – as you can see them from where you are standing.

To help get the ball rolling, I have listed some questions and answers below. While there will be many questions we might ask, these represent some of the ‘right’ questions we should at least be beginning with…

• Is the global economy in recession? Yes
• Has this happened before? Yes.
• Will recessions happen again in the future? Yes.
• Are markets volatile and unpredictable? Yes… but they always were – or did you forget this?
• Is inflation something to worry about? Yes

You can pursue each answer to fresh and more detailed questions, which will themselves lead to more questions and so on. Such exploratory exercises frequently result in the explorer losing their ‘bearings’. The make this exploration more valuable, do try and keep the questions as simple as you can, and control how deeply you dig. While theory says you should know all you can about what you are doing (or intend doing), too much information becomes an inhibitor to action rather than an activator; which does emphasis part of my covering introduction.

Where am I?

This next set of questions are more a ‘self-assessment’. The secret here is to be objective and realistic when you consider what you have got, what you need, and your means of travel. You can dream about the journey and destination later on, but right now, it is vital to ‘audit’ where you are… and not populate yet another wish-list. Again, let the questions and answers determine the path of this exploration. Some ‘right’ questions to get things moving for you…

• Do you have existing investments? Are these performing within your expectations, or not? Do you know why?
• Why am I an investor? Is it because I enjoy the challenge? Is it because I need to plan for my or my family’s future?
• Are your investments or financial wellbeing adequately protected if your ship gets lost, sinks or gets damaged after leaving port? If not, why not?
• Do you have excess income and/or savings? If yes, what part is ‘excess’ and what is ‘needed’ for immediate financial security and/or lifestyle?
• Are you a risk-taker or not when it comes to investment? Rate yourself on a scale of 1-10, where ‘10’ would be roulette and ‘0’ would be cash in your mattress. Do your existing investments fit this ‘rating’, in your opinion, and based on your ‘experience’ with those investments so far? If the answer is “no”, why not?
• Do you have a financial adviser already? How experienced is he? Did he explore all 4-Dimensions with you before setting sail? In your opinion, could such an exploration (or lack) have made any difference to your experiences on this journey so far?

There are thousands of questions that can be asked (and most can be answered). But only a handful of these will be key to determining what ship you need, and what course and speed to set for your journey. The true complexity here is that the right questions and answers are unique to every individual, which might explain why this exploration is so difficult and challenging. This might also explain why so very few clients have done such an exploration before they came to Lighthouse.

Next Friday, we’ll start looking at “Part 2 – Where are the markets going?”. If you liked this article and wish to see “How” we deliver this for our clients… we can arrange a personal introductory discussion with one of our consultants… after-all, this is the point of this blog, helping you

In this day and age it is all too easy to get blinded by the complexities of the market-place and the global economy. Media sensationalism certainly doesn’t help us either. Investment managers and advisers can also just as easily get lost or blinded in technical data and analysis as they try and navigate their clients through these hurricanes and monsoons.

In my mind, the principles of investment haven’t really changed much over the 20+ years I have been in the business. What has changed (aside from my accelerating hair loss) is that many investors do seem to have lost sight of some of the simple principles – dare I say even ‘old-fashioned’ principles, and gotten themselves caught up in technical analysis, the sensational media headlines, together with risk/reward expectations that are now unrealistic (and perhaps always were). This is not to say that the global economic circumstances are not real… but how much of it is just wind, rain and thunder… and how much of is actual lightening?

Given the economic and stock-market turmoil this past year or more, many Lighthouse clients are quite surprised to see that their investment accounts are doing very well. Even those very few clients who are still ‘in the red’ are only marginally in the red, which is still quite good, considering that the DJIA is around -30% and the FTSE -25% from where it was not so long ago.

With this in mind, I thought it would be appropriate to share with you some answers as to “why” our clients are doing so well. Of course, I would love to be able to say this is because Lighthouse is so ‘brilliant and wonderful’, and while this might even be true [tongue in cheek], this is not the reason ‘why’.

In simple and very brief terms, “Why” our clients are doing so well is, firstly because they each know: where they are; where they want to go; the reason for their journey; and the manner by which they prefer to make that journey. And secondly, we at Lighthouse thoroughly explored these ‘4-Dimensions’ with each client to ensure we provided them the right ship and laid the right course by which to navigate through the storms and sunny days on their journey.

These seem very obvious requirements to have in mind before setting sail. Sadly, very few people actually see the value in thoroughly exploring these questions until long after they have set sail, or after they run aground. Commonly, most investors focus their questions on their destination, and superficially examine the other three dimensions. Yet these other three dimensions directly determine whether you do even reach your destination.

This 4-Dimensional exploratory approach naturally does require more time and effort by the financial adviser. But this is what Lighthouse does each time, and the results justify us making that extra effort. Just ask one of our many clients.

If you would like to see more detailed explanations of the above, these are posted on our website blog in sections for your convenience. My explanations will, for some of you, be over-simplistic, and even a little ‘vague’ in some regards. My purpose here is to strip away all the marketing slogans, rhetoric, media-headlines, and technical jargon, to take you back to ‘ground zero’ and revisit some very basic (’softer’) principles about investment in their very raw form.

On Wednesday, we’ll start looking at Part 1 – Exploration. If you liked this article and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you