Last Updated Feb 4, 2011 5:02 PM EST
- The market can remain irrational longer than you can remain solÂvent. Bubbles do occur. However, investors should never attempt to short them because, while bubbles eventually burst, they can grow larger and last longer than investor resources.
- If it sounds too good to be true, it is. When money meets experience, the experience gets the money and the money gets the experience. The only free lunch in investing is diversiï¬?cation.
- Never work with a commission-based adviser. Commissions creÂate the potential for biased advice.
- Work only with advisers who will provide a ï¬?duciary standard of care. That is the best way to be sure the advice provided is in your best interest. There is no reason not to insist on a ï¬?duciary standard.
- Separate the services of ï¬?nancial adviser, money manager, custoÂdian, and trustee. This minimizes the risk of fraud.
- Since we live in a world of cloudy crystal balls, a strategy is either right or wrong before we know the outcome. In general, lucky fools do not have any idea they are lucky. Even well-thought-out plans can fail because risks that were accepted occur. And risks that were avoided because the conseÂquences of their materializing would be too great to accept may not occur.
- Hope is not an investment strategy. Base your decisions on the evidence from peer-reviewed academic journals.
- Keep a diary of your predictions about the market. After a while, you will conclude that you should not act on your "insights."
- There is nothing new in investing, just the investment history you don't know. The knowledge of ï¬?nancial history will enable you to anticipate risks and incorporate them into your plan.
- Good advice does not have to be expensive; but bad advice always costs you dearly, no matter how little you pay for it. Smart peoÂple don't choose the cheapest doctor or the cheapest CPA. Costs matter; but it is the value added relative to the cost of the advice that ultimately matters.
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