Investment Maxims

1. Keep a long-term perspective. Don't let market slumps or hot streaks throw you off track. Be disciplined in sticking to a long-term strategy.

2. Understand investment risk and your own level of risk tolerance. To seek higher returns requires the assumption of greater risk. Risk tolerance involves faith and patience, as well as discipline. Investors who assume too much risk may give up on their investment strategy at the worst possible time.

3. Diversify. But be sure to diversify intelligently.

   1. Cover all the bases. Choose asset classes and mutual funds that "zig" when the others "zag". (I.e., search for low correlation coefficients.) This will minimize your portfolio's volatility and increase your long-term probability of success.

   2. But don't be redundant with active managers. Why pay active management fees if you end up owning nearly the entire market?

4. Focus first on asset allocation. Decide how much to allocate to each asset class based on valuation as well as diversification considerations. Asset allocation is the most important determinant of long-term investor returns.

5. Keep a keen eye on costs. Costs are the only sure thing in investing. Search out and minimize costs that do not yield compensating investor benefits. The long-term rewards will be substantial.

6. Remember, "stuff happens"! The presence of random chance in market behavior is larger than most people realize. Don't be led astray by the inevitable "Monday morning" cause-and-effect rationalizations we inevitably hear to explain every short-term market move.

7. Don't chase performance. Past performance of mutual funds and money managers is an almost useless indicator of future performance. Wise selection of funds and managers requires much more due diligence than a simple review of past performance.

8. Don't try to time the market. When it comes to timing the stock market, there are two kinds of people: Those who admit they don't know how to do it, and those who don't know they don't know how to do it.

9. Buy low, sell high. Never forget, the price always matters! A variety of investment approaches can and should be pursued, but be extremely leery of any that does not give central importance to the price of the security relative to its economic fundamentals. Investment approaches based on high growth rates, reputations of excellence, exciting product "stories", or so-called technical factors are dangerous if the price is not also a key part of the equation.

10. Be a contrarian. The most successful investors are those with the conviction to invest when others are most fearful, and to harvest gains when others are most greedy. This does not mean timing the market. Indeed, it means staying invested when times are tough. And it means selecting which securities to hold and which to sell based on unemotional assessments of their intrinsic value. For example, those who traded technology stocks for mundane "brick and mortar" stocks during the technology bubble are among the most fortunate investors today.