Recently Ken Fisher’s book The Making of a Market Guru, John Wiley & Sons, 2009 was read. The book is a collection of Mr. Fisher’s Forbes magazine columns from 1984 to 2009.

In one of many Mr. Fisher’s columns he reflected on what separates the very successful on the Forbes 400 list from the rest of us. One thing is what they do or do not do. The really smart ones do not get sucked into the trend of the day or week or the month. They tend to stick to what made them wealthy in the first place, by avoiding the fads. The very rich do have problems, much of their wealth is tied in big, illiquid chunks of businesses. They are still very rich, but they can not sell and move on when valuations change for their businesses. For the non Forbes 400 list, building a business is the best way to get rich, owning stocks helps you maintain the wealth.

When you look at a market how do you know when it is peaked? The answer is no one knows until you look back and see all the signs. A potentially better solution is to wait for clear signals that the market has peaked and still come out ahead. Generally market peaks roll over, they do not spike. Generally markets drop slowly at first and most of the drop is in the last third of a bear market. The thing to do is when the market begins to turn is to use 3 month averages to see if you see a top. Then look to the future to see if you see problems. If you see them, turn bearish. You will give a little on the pullbacks, but very few in the market consistently time markets.

Portfolio management has 4 basic rules: 1. Use a benchmark – Mr. Fisher uses the Morgan Stanley World Index. the index is used  to compare your results against what would happen if you put the funds in an index fund; 2. Analyze your benchmark components – for each stock you own think about expected return and risk. Think about what you do not own as much as you much as you do own. (what could you be missing out and is that ok); 3. Know that you may be wrong – no style can always be right. 4. Build insurance into your investments – seek something that should go up should other things go down, but the insurance really does reduce your risk.

Attitude in investing is about better investing. If you do well, your confidence builds and you will tend to think you are great and you will do it again. The market knows you are overconfident, it baits you with opportunity, you will take a bite and lose. The lesson is to learn from your failures. No one  is successful all the time, unless they trade on insider information. Up until the 1930’s it was acceptable practice, now the regulators will track you. A healthy respect of the markets and the people in the industry will help you.

Linking to dividend producing stocks, there is no magic bullet, but time has shown buying good fundamental companies with a monopoly like competitive position and paying a dividend leads to long term success. The markets move in cycles and good companies are recognized with higher stock prices. One of the keys continues to be asking the questions why do you own a stock? If the short answer to your question includes the stock has been paying dividends for the past number of years and is expected to continue paying, and if you are not planning on selling, the daily price changes do not matter. Everyday it seems we can assess information in new and exciting ways, sometimes it is very desirable, with dividend stocks it is a nice feature.

There are more questions than answers, till next time  – to raising questions