Guiding Principles

Financial Guiding Principles

1. Money’s purpose is to resource the life that you want – it is not an end in itself
2. Goal setting works – you need to know what you want for yourself and then for your money
3. Pay off debt first
4. The savings rate beats the investment rate
5. Prediction is difficult – nothing in the future is certain
6. Insure risks you could not cope with
7. There are ages and stages – we are all different
8. Timing is difficult – but you can take advantage of the big trends
9. Being a tax payer is good – it means you are making money
10. Nothing happens if you do not take a risk

Investment Guiding Principles

1. Know what you are trying to achieve
• We are all different – and will all have different investment strategies
• Your investment strategy will be driven by age, financial capacity, aptitude and your ability to tolerate risk
• Work to a plan
• Match assets to the liabilities that you have
• Asset allocation comes before investment selection (and everything else)
• But sometimes you can be tactical and take some bigger bets
• Take advice (but costs do matter)
• A quest for low tax or high cash income can drive poor investment behaviour

2. Don’t lose money
• Buffett’s two rules
• Returns come with risk
• You can’t avoid risk – but you can mitigate it
• The riskiest time to invest is when everyone is talking up the market
• Doubt everything – but nothing happens if you won’t take some risk
• Diversify appropriately within each asset class
• Get money offshore
• Do not hedge back to NZ dollars
• Surprises are mostly unpleasant

3. Profit from the popular
• Markets over-react – they are not rational
• Watch the mood of the mob – be a contrarian
• Buy in gloom and sell in boom
• Mr Market is insane – take advantage of his illness
• Beware bubbles and irrational exuberance
• The best opportunities come from big crashes

4. Buy and sell on fundamentals
• There are only four investments: shares, property, bonds and cash
• Only these four things give income – all else is speculation or a means to invest
• Don’t buy “shares”, buy businesses
• Buy for income – capital gain will look after itself
• The numbers point the way
• Investments are always valued by their income
• Like the business and then consider the price
• No-one regrets buying quality – buy a good business at a fair price
• Speculation is difficult and risky (and is quite different from investment)

5. Consider your aptitude and personality
• The right risk for the right return
• Always take the lowest risk route to your goal
• Simplify: you can never have all the information so work out what is important
• Managed funds have their place
• Use managed funds especially for offshore and commercial property investments
• Tax should not drive investment behaviour
• Put in some effort – or else have your money managed


The biggest losers

The things that are most likely to lead to losses are:
1. Irrational exuberance
2. Advice from your uncle
3. Forced selling
4. Emotional attachment to an investment
5. Over-ambitious asset allocation
6. The belief that something is a “sure thing”
7. Scams

Martin’s Financial Advisory Practice Guiding Principles

1. Client comes first
2. First do no harm
3. Take the Code of Conduct seriously – it is there for a reason
4. I can only advise (it’s the clients’ money)
5. Keep on doubting, reviewing and learning
6. If I don’t know, I say so
7. Privacy is critical
8. Referrals to other professionals are made on good faith – I do not take commissions
9. Avoid conflicts of interest
10. Watch your language