Step 1 of Investing

There are as many theories of and strategies of investing as there are hot sauce bottles in my cupboard (answer: lots). But there is, in my 15 years on the markets, one basic, fundamental, core requirement to every strategy that cannot be done away with regardless of the market, the time, the political system et al. I call this Step 1.

Step 1 is t sit down, think an write down your view of how the business world works. This is what underlies every single one of the assumptions and judgements and predictions you will make. For example, when you assume the 10 Year US Bond as the risk free rate the underlying assumption is that the US is least likely to default on its debts which, in turn is based on the belief that the US Government prioritises economic growth and progress over partisan issues (though the taper tantrum should give you pause).

Similarly, if you believe tech (for example) is a good long term bet, it is based on the underlying belief that tech is a net benefit to its clients (be it business or retail) and that businesses want to invest in this tech (for whatever reason).

You need to be very clear about this Step 1 and your basic underlying belief about how the world works. This informs what you look for in an investment. for example, if you believe in the Warren Buffet view that the US is unique and uniquely positioned for progress, then the majority of your investment screens would start with companies whose business is largely US based.

Without this basic underlying philosophy, you are subject to the whims of the market and your susceptibility to being swayed by them.

TL;DR: Know why you’re doing what you’re doing.