In previous articles I have talked about many finance topics. The topics range from the “Bacon Cheeseburger Index and Inflation” to “Is Canada Ready to Retire?” Throughout these articles one main theme is repeated is all about the process, process, process.

Investing requires a well thought out and defined investment process to give you the best chance of long term success in your portfolio.

Process allows one to take out the emotions from something that is very emotional... money.

The stock market often seems like a casino where, to the average player, the odds of success are random. However, the casino owner understands that the long-term odds are predictable. Clearly, you want to take the position of the casino and not the player.

Casinos make profits by being right fractionally more often than they are wrong. They “have figured out the math” so that the odds are stacked in their favour. Over the long term, the casino comes out ahead of the player.

Institutional investors, like casinos, “have figured out the math” in order to benefit from long-term odds. They focus on factors that they can control and try to avoid making any bets on factors that they can - not control. They evaluate the long-term risks, potential returns and the correlation between investments.

These factors underlie their blueprint for creating an optimal portfolio.

As mentioned above, money is a very emotional item for most non-institutional investors. In my 25 years of managing money, I think of all the emotions, the most dangerous for investors is overcon -

During a “bull market” (definition: prices are rising or are expected to rise) the economy is strong and the unemployment rate is low, some investors will start to think they are investment experts and
will become overconfident. This overconfidence can make investors and inexperienced advisors forget about the risk they are taking on, or they may ignore all the signs that suggest that it is time for caution or to build cash.

This is the time that they forget about an investment process and they sometimes start the new strategy of “Ready...Fire...Aim”. I have seen this movie before and it doesn’t end with “happily
ever after”!

I always quote from my investment super hero, Warren Buffett. I am reminded of two quotes whenever I think investors are sometimes becoming over confident:
1) Only when the tide goes out do you discover who’s been swimming naked.

2) Warren Buffett’s two rules:
Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.

Some important questions to ask yourself at this time:
• Are you “swimming naked?”
• Are you following Warren Buffett’s two rules?
• Are you trying the new strategy of “Ready... Fire... Aim?”
• Is it time for a second opinion of your investment portfolio ?

To read previous articles, go to my website at

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