Investment Philosophy…Free Markets Work
There are two theories involving investment philosophy that drive investors. The traditional investment firm believes free markets fail. These firms want you to believe that they can tell you what asset classes will result in superior returns. These firms want you to believe they can pick the hot stocks for you.
When an advisor believes you can be a successful investor by capturing markets returns they believe free markets work.
Free Markets Fail when
- The market fails to price goods and services appropriately
- It is possible for some individuals to identify in advance which prices are inaccurate.
- Underpriced or overvalued markets can be forecast or predicted.
- By taking advantage of these mispricings either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.
- People with this view would utilize traditional investment myths and speculate with their assets.
Free Markets Work when
- Based on supply and demand the free market is the best determinant of market prices.
- All available information is factored into the current price.
- Only new and unknowable information and events change pricing.
- The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
- People with this view would utilize free market investment strategies.
Once you determine your investment philosophy who will invest accordingly.
If you believe free markets fail you would.
- Pursue traditional investment strategies.
- Stay connected to all sources of financial information.
- Read every investment article you can find.
- Work with a financial professional who shares your market belief.
If you believe Free Markets Work you would
- Focus on capturing market returns.
- Utilize asset class or structured funds.
- Diversify prudently.
- Identify your risk tolerance.
- Eliminate traditional investment strategies.
- Work with a financial coach who shares your market belief.