The 2-Minute Thought: The Final Four of Investment Rules

At the end of 2014, Morgan Housel wrote out his 16 investment rules to live by for an article in The Wall Street Journal.  And while Housel didn’t write the article during the NCAA March Madness basketball tournament, I somehow always associate it with the “Sweet Sixteen” and think about it in March.

There are some very good truths to remember from Housel’s article.  One is that in investing, “There are no points awarded for difficulty.”  Another is that “’I don’t know are three of the most underused words in investing.”  He reminds readers that Things change quickly – and more drastically than many think.  Another good one is that, “You are only diversified if some of your investments are performing worse than others.”  Yup, it’s true.  If you have a diversified portfolio, not everything should be going up at the same time – though people still find this upsetting.

You can still read Housel’s article here (https://www.wsj.com/articles/16-rules-for-investors-to-live-by-1417789469) if you have a WSJ subscription. 

Re-reading Housel’s rules this week – and perhaps also thinking about the upcoming NCAA Final Four -- got me thinking about what investment rules would look like if we simplified investment thinking even further, from 16 rules to just four.  Four rules are different from 16.  If we really had to get investing down to the bare basics – to the Final Four of investment rules -- what should we say? 

To find out, I asked around at the office and elsewhere.  I figured that everyone would have their own rules, and it’s true that everyone does.  But I also was surprised to find that many different people come up with investment rules that are both remarkably similar and remarkably simple.  Could investment really be this unfussy?

If I had to synthesize all the responses I got, they came to something along the lines of:

1) Deeply understand your goals and what keeps you up at night.
2) Be patient and get rich slowly because time is your friend.
3) Diversify.

4) Never overpay in price or in fees. 

There were other good suggestions, of course, including: Keep it simple, be realistic, have courage and stay the course, and don’t buy what you don’t understand. 

But really, many responses were variations around the themes of 1) know thyself, 2) be patient, and 3) stay humble (“Always remember, you’re not that smart”).

What are your rules?  If you want to share your good ones for a follow-up article, email me at julie@hansondoremus.com.