No matter what your opinion is on where investment markets will go next, one area of agreement is that markets have been volatile in recent years. Nobel Prize Winner – William Sharpe – has recently provided his thoughts on investing in a turbulent market for the Stanford Graduate School of Business where he is a professor emeritus of finance - William Sharpe: How to Invest In a Turbulent Market
We think highly of Sharpe’s work and it forms a major part of the investment philosophy we use to develop investment portfolios for clients.
So has Sharpe’s views changed since the GFC started in late 2007? In a word, NO.
In the Stanford article Sharpe provides an overview of his four pillars of investing - Diversify, economize, personalize, and contextualize.
In a nutshell these pillars are:
Diversify – invest in a broad range of shares and bonds – preferably all of them.
Economize – keep costs low.
Personalize – make invest decisions that are most appropriate for your own situation.
Contextualize – the price of an investment reflects the average opinion of investors about its future. You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it.
Sharpe provides some really important concepts that in our opinion should be the basis for developing a successful investment philosophy.