The three rules of investing (and other interesting rules)

Jun 5, 2019 | Tony Byrne's View

Most people are aware of the three rules of property investing.  Wait for it. It’s dead easy to memorise.  Location, location, location!  It’s really that simple.

I’ve always loved simple rules.  In fact, I love anything that is simplified, as do our clients.  This is especially true in the ever increasingly complex world of financial and tax planning.  The annual Finance Act gets larger and larger each year running to hundreds of pages long. It is exasperating and far too complex for anyone other than a tax specialist to comprehend.

Over the years, I have invented my own simple rules based on my many years of experience of living, working and running businesses. They all follow the same format of one word repeated three times. Simples!

The first rule relates to marketing.  I learned a long time ago, that the most powerful way to achieve high returns from mailshots was to target your audience.  A well worded mailshot sent to the wrong target audience will achieve far worse returns, than a badly worded one delivered to a highly targeted database.  A cold mailshot will usually produce a return of less than 1%. We once sent, a highly targeted mailshot to matrimonial lawyers, via a firm of divorce mediators that achieved a success rate of 25%!  The subject was pensions on divorce.

So take a guess at my three rules on marketing?   Targeting, targeting, targeting of course.

Another observation of mine has been that the very best employees have one attribute that surpasses all others.  I’ve employed a lot of people over the years in a number of businesses of mine. What I have found is that employees with a great attitude are the best ones to employ. It is not the most intelligent ones nor the most qualified or experienced ones who are the best employees.  It is always the ones with the best attitude. It’s the old adage: “Recruit attitude, teach the skill.” The most valuable employees I have ever employed have great attitudes and are an absolute delight to work with.

So what are my three rules on recruitment?  You guessed it, attitude, attitude, attitude.

This leads me on nicely to my three rules for success in life.  Again, I have observed that the world’s most successful people have one personality trait that trumps all others.  It’s not a question of talent, intelligence, foresight or bravery, though all of these skills undoubtedly help. My favourite inventor in history was Edison, the inventor of the electric light bulb.  His vision was to literally light up the world, what an incredible vision. This man had little formal education, he left school at 14 and he wasn’t even a scientist, but boy did he have persistence, by the skip load!

After 5,000 failed experiments to create the electric light bulb, a friend advised him to give up because he had failed 5,000 times. Edison, undaunted, replied that he hadn’t failed 5,000 times.  He had merely discovered 5,000 ways how not to make an electric light bulb! What a marvellous use of language and what an incredible attitude. Finally, after 10,000 experiments he created the electric light bulb.

So, based on the experience of Edison what are my three rules on success?  Persistence, persistence, persistence.

This leads me on nicely to my three rules on investing.  I have studied and worked in the finance profession for pretty much all of my adult life.  My working life has been for over 40 years so far. What have I discovered? The best long-term investment returns are to be obtained from investing in shares. Why? Because I have read countless books, articles, guides and blogs and attended innumerable investment conferences, workshops, seminars etc. which have all led me to this conclusion.  

Research by stock market historians show that the long term returns on US equities, over the last 200, 100, 50 and 20 years, have been 6.7% a year including reinvested dividends.  This is significantly in excess of the returns from all other asset classes especially cash, bonds and property. This is why you should invest predominantly in shares because by doing so you are investing in the world economy which grows inexorably by about 3% a year.  Don’t believe all of the financial doom and gloom you read about in the media. In spite of the many financial crises, wars, famines, riots etc., over the last 100 years, world stock markets have continued their relentless rise.

Will share prices fluctuate up and down in the meantime?  Of course they will. Will the waves in the sea continue to rise and fall and the tide go in and out?  You bet! Does that mean the world will become submerged under the ocean? Unlikely, I would say.

So, what are my three rules for investing?  You guessed it. Equities, equities, equities.

If you would like advice on how to have your investments and/or pensions predominantly invested in equities why not get in touch with us?  You know it makes sense.

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