Common Sense from Marc Faber

Dr. Marc Faber, the economist, investor and long-time member of the prestigious Barron’s Roundtable, offers up some good perspective on investing in his latest Monthly Market Commentary newsletter.

The title of the commentary is “One of the First Duties of the Investment Advisor is Educating the Masses not to Speculate,” and it’s worth grabbing out a few of his key points.

I feel that most investors take far too many risks – often with borrowed money – and fail to diversify sufficiently. They also have little patience, very short-term time horizons and no tolerance for losses. Finally, their expectations about investment returns are completely unrealistic… Most investors buy a stock or make an investment with the view that within a month the return should be between 10% and 20%.

A real return of around 4% per annum is about what an investor (exclusive of costs, and without making the mistake to buy “high” and sell “low”) could expect to achieve over longer periods of time… If you can achieve an annual average real return of just 3% on all your assets (inflation adjusted), you will leave a huge fortune to your children.

For the average investor like myself, I prefer diversification and no leverage. I have seen time and again investors (including myself) be right about an asset class’ future performance but fail to convert those views into any capital gains… All I wish to say to my readers who are not managing risk on a daily basis is that the prime consideration should always be capital preservation and avoiding large losses.

Behavioral finance research has identified many emotion-driven tendencies of investors that lead to suboptimal returns – overconfidence, chasing the herd, holding onto investments too long or holding onto them not long enough, and many more.

Marc’s points above are common-sense basics that investors should be reminded of every so often to help them make better long-term decisions.

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About Frank Holmes 282 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

4 Comments on Common Sense from Marc Faber

  1. The simplest diversification system you can use is to put 25% of your funds in each:

    Your financial institution's money market (I use Fidelity, whose money market is FDRXX)
    Long term U.S. treasury bonds

    This provides no worry investing – all you have to do is check it every now and then and readjust if any investment is more than 10% up or down.
    This is true investing. Investing in single companies is speculation.

  2. In my previous post I should have said "buying single companies is speculation". Also
    this diversification system has returned to me an average of over 9% per year over the last 7 years.
    Some years a little over 9%, some years a little under, but overall about 9% per year for last 7. That's
    investing, but if you want to speculate a little, do it, but do it with money that you aren't afraid to lose.

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