Investing Lessons From Paul Merriman

Paul Merriman’s latest article at MarketWatch was titled The 12 Best Retirement Investing Lessons. A couple stood out as being especially useful.

Three: I have learned to focus on the things I can control and leave the rest to play out, as they certainly will, in an unknown future. What can I control? Expenses, taxes, turnover costs, diversification, asset class selection, to name a few. Most of the rest of what the media focuses on is only noise. I can also control (to some degree, at least) my emotions and my expectations and my discipline. I have learned that it’s extremely worthwhile for me to do so.                                          

This is one I have talked about a lot. You have a much better chance of controlling your savings rate, spending habits and not succumbing to emotion. Any investor will endure periods where the market does well, periods where the market does poorly, periods where their investment performance is relatively good, periods where their investment performance is relatively poor and any combination of the above. 

Seven…Instead, focus on the potential loss you could face if things don’t go as you expect. For example, any individual stock can lose most or all of its value, regardless of how good the “story” is regarding its products or management. A diversified stock fund, on the other hand, has an expected loss of only 50%.

This is a tie in with to the idea of people feeling losses far more than they feel gains. The bigger thing is that people too often forget what losses, really I mean big declines, feel like. Time goes on, people get more comfortable with risk, or think they are more comfortable, add more risky and volatile holdings and then the next big decline comes along.

Twelve: I have learned that 99.9% of successful investing is about defense, not offense. This means avoiding the loss of the money you have saved and the gains you have made.

Similar to number seven but still very important.

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