What is investment philosophy?

Investing is not a specific scientific discipline, this is not a subject or activity that can be learnt or obtained easily. Investing involves lot of different subjects, different sciences and practical skills that can be developed by a person only in the course of time.

Investing as to its definition is very simple.

Investment is the allocation of capital (money, assets) with the aim to grow it in time and yield benefit for the owner.

However, by considering the limit of capital and resources in the world and the competition provided for the rate of return, growing money with the higher than average rate of return in practical meaning is more complicated than expressed by the definition.

Philosophy is the science of thinking and investing is also in major part related to thinking.

Investing means making continuous decisions. The achieved investment result is though independent of the earlier made decisions. It is the paradoxical situation that is hard to understand by an average person.

People are generally used to live with knowledge that the near future is quite predictable. For example –morning arrives, we need to wake up, go to work, a bus arrives on time; during lunch time you become hungry, there is always food on sale in a shop, in the evening at 21.00 there is always a news broadcast etc.

As to predictability, the difference occurs when the person starts to look farther of one’s surrounding and the time horizon prolongs. The situation will become especially unpredictable when greater and more global processes are involved such as weather forecast, sports events or elections. This is also the case with stock markets and economy in general. Processes are really extensive, being very uncertain and the predicting of potential scenarios is also generally quite impossible.

The science of thinking means that there are a number of questions for which answers can be found.

Investment philosophy evolves when well-argued logical connections and answers have been found to the questions arisen in the course of time.

This could be also briefly called investment principles or strategy.

Philosophy itself is still considerably wider definition. Long-term experienced investors have surely developed their philosophy and, generally speaking, such investors are more successful than average in money allocation.

How is the understanding about investing evolving?

Everyone cannot be successful. As in all fields of life one should here also continuously work, study, read, acquire practical skills and learn from past mistakes. I have pursued to avoid acquiring wrong skills, this means that I have tried to read theoretical and professional literature which would add new value to my knowledge. If we look at investment related literature, it is practically impossible to find the works out of hundreds of thousands which are not superficial and could as effectively as possible create the knowledge base.

There are books to which beginning investors reach sooner or later. The further choices and the direction which is taken by a person while investing depend already on his own preferences.

How to invest - Evolvement investment pholosophy

The important works are surely “The Warren Buffett Way” by Hagstrom, “Intelligent Investor” from Benjamin Graham and his other works, the “Most Important Thing” by Howard Marks and “Maring of Safety” by Seth Klarman and also “Rich Dad Poor Dad” by Robert Kiyosaki or “The Little Book That Beats the Market” by Greenblatt.

The acquisition of knowledge starts from the beginning to discover and study about the relations between events. After a strong knowledge base is created, the person can by himself ask questions leading to new knowledge and thereafter to new questions.

Does philosophy mean that answer should be found to all questions?

Not at all.

Considering that the world and technology are in constant development, different techniques are created and thus new questions and skills appear to be acquired. This all needs not to be done! It’s not certainly waist of time, but it is waist of potential.

By continuous and motivated investing everyone can find a suitable way where to allocate one’s money.

And the success is finally arriving when the person can become a specialist at the specific field. Money can be grown by very different methods – to allocate money to the deposit by buying real estate, entrepreneurship, antiquities, shares or by investing in securities or lending etc.

During my investment career I have invested money to very many assets starting from shares, currency and ending with art, wines and jewels. No relevant recognition has just occurred – I can possess investment wine in one cellar of London, but I have no emotional contact with it. For greater certainty, wines to be invested do not move from one place in the world to another, but these are kept at deposit in specific places in general and an investor can acquire these without ever seeing this specific wine.

However,

I feel myself as the satisfied shareholder of certain company with the right to vote and a part of the company belongs to me.

This of course provided the company’s investor relations are the kind to create such feeling. I have traded also with currencies for long time and quite successfully, but just short–term. I am unable to buy and keep the Japanese yen for long-term as I do not feel myself related to Japan and cannot predict the economic events of Japan long-term (and I believe that no one can). The same goes with gold – I do not invest probably without good reason or force to this asset class, as I do not know what is going on inside the earth crust or how the price of gold at the world market is actually created.

For conclusion it is important to understand that the philosophy evolves over time. Gradually and step-by-step. The philosophy is needed for the reason that investment is related with uncertain events. As I explained earlier, this is against our nature as we expect everything to be predictable.

Thus specialization by investing is necessary in the same way as in every other field of life.

By A.R.