by Wendell Cayton

Since this is the time for New Year’s Resolutions, I considered a few for the investment-minded. Calling them resolutions, goals, or objectives makes little difference – following them will make a difference!

1. Save first and spend what’s left
   The road to riches is paved by discipline to live within one’s income. Those who learn to pay themselves first by saving before they spend will have capital to invest. It is this creation of capital that will buy economic freedom.

   Unfortunately, U.S. savings rates are at an all-time low. Economists believe that this is somewhat the result of generous stock market returns creating a sense of wealth that is muting the incentive to save. Keep in mind that the stock market is where savings should be invested, not where savings are created. A disciplined approach to “saving first and spending what’s left” will give you the capital to benefit from the stock market.

2. Maintain a diversified portfolio approach to investing
   Having all of one’s eggs in one basket, so to speak, is a high-risk strategy that can cause sleepless nights. With a rapidly rising stock market the temptation is to buy the hot stock(s) or own the hot mutual fund. Think back to September when the same stocks or funds plunged. Wouldn’t it have been nice to have owned some stodgy, government bonds that shot up in price at that time? Those who did were in a position to sell the bonds and buy the stocks that went on sale at a 40% or greater discount!
3. Buy low and sell high
   Makes all the sense in the world, but it is very difficult to execute. Nevertheless, look for good companies that you would want to own whose price has been pushed down by bad news about its industry and whose fundamental business is solid. Buy at a discount. The time to sell is when you reach a point where you would not buy the stock for that price. . . too expensive. Sell if you have a better idea where to put the money.
4. Think long-term when investing
   Buy good companies that you would be proud to own years from now. Market timing is terribly tricky and even the pros do not do it well. Buying and holding quality stocks or the mutual funds that invest in high quality stocks will help you ride out market swings like those last fall with confidence.Recall the September headlines in the financial press? The financial world as we then knew it was teetering on the brink of extinction. . . a crash equal to ’29 was imminent. Those who suddenly became short-term investors, and who listened to the pundits, sold and missed the moves up that took the stock market back to new highs in November. Keep your long-term perspective, regardless of short-term market volatility.
5. Avoid the “Urban Myth” stocks
   These are the stocks you hear about from your neighbors at the local coffee shop. They know somebody who knows somebody else whose son works for the company that is about to bring out the product/service that will end all of mankind’s woes. . . and the stock is selling for $.50 a share! How can you go wrong? Simple, buy into the myth. See resolutions #3 and #4.

Have a Happy New Year and may this one be the best of the century!