Investment Advice & Tips

At Luthman Financial Management, we know investing can be challenging at times so we created this investment advice top 10 list of tips to foster consistent investment performance.

1. Don’t fall in love with your investments – When a target profit has been achieved, stay disciplined and lock in the profit. Otherwise, you may find yourself with an investment that trends sideways and even if you break even you still lose…time.
2. Set realistic investment goals – If your goals are too high they will induce you to take more risk than you may want to, but if they are too low they will cause you to underperform what you may need to maintain a level cash flow adjusted for inflation.
3. Invest in assets that have a high degree of liquidity – When your target value has been achieved and you are ready to sell, or if you need to sell to generate money for some other purpose and there is no one to buy your asset at a fair price…was it really a good investment? LFM trades in stocks that have a high average of daily volume, so when it is time to sell or buy, we obtain good prices for clients.
4. Do your homework before you put down your money – Now that we live in a world of Enrons, World Coms, etc. investors have become wary of Wall Street analysts who say good things about a stock. Are they shading the truth a little? Well, one way to determine that is to listen and read what they write but also watch what other investors are doing. Technical analysis is good at spotting stock trends that are about to change up or down. How you position yourself ahead of such changes could be a big determinant in the performance you enjoy.
5. Don’t be afraid to come back to a previously successful investment – Too often investors shun an investment once it is sold. They treat it as if it had a disease. What they forget is their investment of time to study the stock before they bought it initially. Stocks don’t go straight up or down…they zig zag for a variety of reasons. What is important is their trend. If a stock appreciates +60% in two years, but within that period goes up 40% followed by a decline of 17% and then an advance of 13%, and a decline of 19%, and finally a move up of +50%, which is better…hold for 2 years and get a 60% gain or buy and sell to get a potential gain of over 130%? Even “after tax”, most people would agree the buy/sell root produced the preferred results. LFM’s typical holding period usually averages 2 to 4 months.
6. Remember to do the math perspective – Over the long-term stocks tend to perform at a pace of about 10% to 12% per year. If you can get 15% in 2 to 4 months, isn’t that worthwhile? LFM believes it is, and actually that is our goal for individual stocks in client accounts…+15% in 2 to 4 months net of costs!
7. Pay attention to situations where a stock’s short-term and long-term technical stock trading valuations coincide – Investors can use short and long-term indicators to determine if they either want to buy a stock of sell a stock. Sometimes these indicators agree with each other and sometimes they disagree. LFM has found that when both short and long term indicators agree with each other, a significant move (up or down) in a stock is near. This could help to produce a nice profit or avoid a bad loss. Either way, you win.
8. Be diligent to review investment positions and results periodically – Whether you hire a professional investment advisor like LFM or do it yourself, you should conduct a review periodically to see if improvements could have been made (e.g.) could you have bought or sold a stock at a more advantageous price AND more importantly… why? LFM reviews stocks it buys for clients DAILY. They are constantly comparing the track of a stock to a bank of leading and lagging indicators to determine exactly where is the best time to buy and sell. Whatever your periodicity for review, be disciplined to do it without fail or exception. It is usually when you take your eye off the ball that bad things happen.
9. Abide by the principle of “Active Asset Allocation” - The quickest way to get into trouble is to stay with a fixed asset allocation (for example 60% stocks, 30% bonds and 10% cash) either because you’ve heard someone say that would be good for you or some book listed that as a way to hedge against losing value in your portfolio. What is so good about holding bonds when interest rates are raised? The answer is there is no good reason. When rates go up, bond values go down. It is a pure mathematical relationship. So again, why should you hold bonds in that kind of an environment? ANSWER…you shouldn’t. But why people do it in spite of this information is they are not aware there is a better way to move in and out of bonds to make not just interest income but also appreciation as well. LFM uses active asset allocation such that when it is not good to be significantly in bonds or stocks, they won’t be. LFM is a technical financial advisor who uses a bank of proven indicators to determine when it is advantageous to move heavily into or out of stocks and/or bonds.
10. Expect you are going to make mistakes – How you learn from your mistakes will provide a base for much better performance in the future. Never stop learning. There is no one in the world who has all the answers. Some think they do, but no one really does. A mark of a great investor is a person or firm who is honest with themselves and sees mistakes not negatively, but rather as an opportunity to improve.