Separating fact from fiction important when investing

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The search for truth, and the acceptance of truth, are arguably the most common dilemmas facing most investors today. Without a doubt, there is no shortage of information available. |ret||ret||tab|

In fact, if information was water, most investors would have drowned long before now. Information overload stymies even the best investment student. |ret||ret||tab|

"Informed decisions" look different today than ever before.|ret||ret||tab|

If the research needed to buy stock in an individual company was all a person needed to be concerned with, making money in the market would be easier. |ret||ret||tab|

But our markets hold many a surprise to the unwary investor, and the speed of information combined with the plethora of accounting methodology leave even the finest analysts confused. |ret||ret||tab|

Most investors aren't as concerned with specific fundamental company analysis, but with the market as a whole. |ret||ret||tab|

Unquestionably the most valid reason why Americans fail in the markets is a result of a learning disorder. |ret||ret||tab|

We just don't get it, do we? |ret||ret||tab|

In 1987, the market taught us that if you throw money at a runaway train, you usually lose. In 1999 the "dot.com mania" caused even very disciplined investors to believe in the "new paradigm" that fundamental company analysis was no longer valid. |ret||ret||tab|

Why are we so naive as to believe that investment truth would change overnight? Fortunes were lost as many attempted to throw money at the runaway "dot.com" train, only to learn yet another old lesson from the market: if it seems too good to be true, it probably is. |ret||ret||tab|

Most lessons the market teaches us are expensive and certainly 2000 was expensive for many.|ret||ret||tab|

The fact is, Americans refuse to learn lessons the first time through. |ret||ret||tab|

We must accept the fundamental truths that are displayed throughout history; embrace facts and discard fiction. |ret||ret||tab|

We must structure our investment portfolios around solid, repeatable truths, allowing them to be the guideposts for our investment journey.|ret||ret||tab|

The first truth is that there are two very precise directions in the market. |ret||ret||tab|

Obviously, one direction is up, and the other is down. History shows the difference is that the first direction is permanent, the second is temporary. |ret||ret||tab|

Most people confuse these two distinct directions thinking the short-term declines are permanent. There are those who would say that the market cannot continue to rise. Their voices are merely echoes of the many others in history who were also wrong.|ret||ret||tab|

The second truth is that growing earnings are essential to growing stock prices over the long term. |ret||ret||tab|

We know that a small can of air and a large can of air command nearly the same price. |ret||ret||tab|

Companies without solid, positive earnings will continue to be the bottomless pit that consumes many who refuse to accept this truth. |ret||ret||tab|

Over time, everything reverts back to truth, and investing in companies without earnings is simply not a sustainable strategy for portfolio growth. |ret||ret||tab|

The third truth is that the greatest risk is not being in the market, but being out of it. |ret||ret||tab|

Peter Lynch, possibly the greatest money manager of all time, stated that this is the biggest reason that people fail at investing. |ret||ret||tab|

Despite the undeniable historic evidence, there are still those who will be out of the market in 2001 simply because of the events of 2000. |ret||ret||tab|

Ownership of companies in America has been, and will continue to be, the most fundamentally reliable method of growing wealth known to man. Volatility is not only the price of performance, but the reason for performance.|ret||ret||tab|

The fourth truth is that asset allocation (a proven method for portfolio diversification) is substantially more than just a nice concept. |ret||ret||tab|

These words have become not only the most commonly used, but the most misused by many so-called investment advisors. Rookie brokers use these words so fluently you would think they actually know what they mean. |ret||ret||tab|

William Sharpe won the Nobel Prize for a concept that involves a very scientific method for increasing portfolio return while reducing volatility. |ret||ret||tab|

The last time I checked, they don't hand out the Nobel Prize for some watered-down, weak theory that lacks substance. |ret||ret||tab|

The bad news is, only a handful of investment advisors understand the concept, much less know how to use it. The good news is, a few do and they are worth seeking out.|ret||ret||tab|

There are many truths to be learned, but few will have the positive impact on your portfolio that these will. |ret||ret||tab|

You must make the quality decision to learn and accept that established principles endure the test of time. |ret||ret||tab|

Learn these truths and experience investment results that only a few thought possible. |ret||ret||tab|

|bold_on|(Mike Bennitt is a Certified Financial Planner and the president of Great Southern Investments, a registered broker/dealer member NASD/SIPC.)[[In-content Ad]]