Over the years EFS have developed 10 points that any expatriate or international investor should take into account before investing:
Point 1. There is no such thing as ‘short term investing'. This term is in fact an oxymoron. Put bluntly, a short term financial focus is speculation not investing. Investing is a fundamental commitment of your capital to the pursuit of greater goals in your life.
Point 2. Valuation matters. If you begin ‘it's different this time', you're wrong. When valuations are far above historic levels there's good reason to be concerned. Good companies may remain good companies but they may not continue to be good stocks. When this basic principle of investing is ignored you'll eventually pay a price.
Point 3. Asset allocation is a diversification strategy that works. It doesn't offer guarantees against short term losses but it's an effective investment risk-management tool. Sector concentration, no matter how attractive the sector appears, no matter how compelling the arguments, is still speculation.
Point 4. There's no opportunity for return without some risk. If you don't see or understand the risk, keep looking. It's there. Once you find it and understand it, it may be acceptable. But until you identify the risks they are unacceptable.
Point 5. Most dollars flow into high performing investments after the performance has occurred. The single most abused tactic is for investors to chase last year's performance. Have a disciplined investment plan with prudent investment selection criteria if you want to avoid making this mistake.
Point 6. A well balanced portfolio should be diversified among the major assets classes: Cash, fixed income, large and small companies both growth and value, domestic/international. The only guarantee is that some of these areas will periodically disappoint you. But you never know which one or when. Your plan will succeed only if you stick to it and remain invested across several asset classes.
Point 7. Years of high returns can be completely reversed by one bad year. That's why you shouldn't use short term criteria to judge long term results. That can lead you to unknowingly creating a very high risk portfolio. Ultimately, consistency is more important than an occasional ‘home run'.
Point 8. Traditional rules of investing are still true. While they can be adjusted periodically to fit finer points of the current economic environment, never abandon the core principals of diversification, sound values, patience, following a sound plan whilst maintaining a long term perspective. Know the rules and know when you are breaking them.
Point 9. Raw information is not knowledge. Just knowing the facts won't necessarily make you any wiser.
Point 10. Market timing doesn't work. Moving in and out of markets based on any anticipated changes in price as opposed to fundamental changes in value is speculation - not investing. And a final note: investing your serious money requires discipline, patience, objectivity and a clear, documented investment policy.
