Having an investment philosophy is important if you are going to risk money in the markets. A good investment philosophy not only helps clarify market behavior, but it also tells you how you should react to changing economic and financial conditions.
Our investment philosophy yields a three-pronged approach to managing investments:
1. The tendency of the economy to cycle between periods of boom and bust - the business cycle - implies a similar cyclicality in every investment option that is tied to it. Each type of investment will, as a result, have a favorable period and a not-so-favorable period within that cycle. Therefore, investment risk comes from the cyclicality of the economy and it behooves the investor to know where we are in that cycle at all times.
2. If "timing the market" means trying to stack the odds of success in your favor by aligning investments with the business cycle, then we can time every market whether that market is for bonds, stocks, commodities, currencies, or any other. Real diversification requires us to time as many disparately correlated markets as is possible and practical.
3. The willingness to short an asset class is necessary to minimize portfolio drawdown. Drawdown is the term used to describe the drop in value of a portfolio from the most recent high value to the subsequent lowest value.
Our Favorite Blogs
- Abnormal Returns
- Businomics Blog
- Cafe Hayek
- CXO's Investing/Trading Insights
- Ludwig von Mises Institute
- Marginal Revolution
- Mish's Global Economic Trend Analysis
- Peter Dag & Friends
- Peter J. Boettke
- Seeking Alpha
- The Capital Spectator
- World Beta
Great Books Related to Investing
- Against the Gods: The Remarkable Story of Risk - Peter L. Bernstein
- The Black Swan: The Impact of the Highly Improbable - Nicholas Nassim Taleb
- Fooled By Randomness - Nassim Nicholas Taleb
- Complexity, Risk & Financial Markets - Edgar E. Peters
- Fractal Market Analysis - Edgar E. Peters
- Chaos & Order in the Capital Markets - Edgar E. Peters