The Importance of Having Investment Principles

By | October 19, 2018

Investment principles seem to be quoted everywhere. They are usually at the front (or near the front) of most marketing brochures and/or websites. This is because they are extremely, extremely important. I contend that one of the most important questions you can ask a financial advisor you are considering working with is this: “What are your investment principles and please explain them to me.”

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One of my most memorable ‘ah-ha’ moments on this subject came when I was in San Francisco in the mid 1990s. I was a participant in an important meeting that Charles Schwab & Co. was hosting. Let me share the moment. Charles Schwab had a few hundred branches across the country. This was a three day annual meeting for Branch Managers in San Francisco. We had just begun giving investment advice to clients a few years earlier. One of the questions we were struggling with answering in this new world of providing this advice was – “What can we say and what should we not say to clients to help them with their investment decisions?”

Sound like an easy question to answer? Trust me it wasn’t. We needed to be able to provide a guideline that was broad enough to help clients and narrow enough to ensure we could train all the advisors so they could give good actionable advice to clients across the country. Therefore the sessions addressing this subject were very lively. Charles Schwab was actively running the company at the time and seemed to sense this, because during one of the Q&A sessions he shared a list of seven “Rules of Thumb for Investing“. Basically they were investment principles. The seven Rules of Thumb eventually became the Ten Investment Principles that Charles Schwab & Co. uses today. Some of these principles, along with a few I’ve added myself, have guided my investment decisions ever since.

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