George Soros takes what has been described as a “seat of the pants” approach to investing. Warren Buffett adheres to a “buy and hold” principle. Benjamin Graham based his decisions on a stock’s intrinsic value. Despite these investors’ disparate styles, each investor succeeded by adhering to his own philosophy.
An investment philosophy is a guiding framework that informs your decision-making process. It should reflect your core beliefs and express how it relates to your client’s objectives, says Sam Febbraro, executive vice president at Investment Planning Counsel in Toronto.
Having an investment philosophy will serve you well in identifying and connecting with your ideal clients. Here are some tips to help you in developing and articulating your investment philosophy:
> Strive for consistency
Stick to one philosophy that you apply consistently in your investment decisions. Don’t attempt to alter it to suit the aspirations of a particular client or demographic group, says Evan Thompson, business coach and founder of Evan Thompson and Associates in Toronto.
Similarly, you shouldn’t have different philosophies for various market scenario. Instead, set your sights on the long term, say Febbraro and Thompson.
If you start letting clients dictate your approach, you become captive to their emotional reactions to market fluctuations, says Thompson: “The client is looking for leadership, not order-taking or reactive behaviour.”
Your investment philosophy should be simple, repeatable and documented, says Febbraro. It should act as a buffer against short-term market changes and prevent emotions from interfering with your decisions.
> Outline your process
When clients or prospects meet with you, they’ll likely want to engage in a discussion about how you apply your philosophy. So, be prepared to discuss how you select investments, manage risk, preserve capital and rebalance and monitor their portfolios, Febbraro says.
Treat your investment philosophy as synonymous with your “personal brand,” says Thompson. It must address the way your values complement your clients’ interests and expectations.
And, as your practice evolves to include clients with various asset levels, Thompson says, you may need to revisit your philosophy while staying rooted to your beliefs.
> Ask for feedback
Seek insight from other investment professionals who can advise you on ways you can play to your strengths and appeal to clients you envision working with, Thompson says.
Thompson also sees no harm in describing your philosophy to a sophisticated client — provided you have a special rapport with him or her. “Clients can add value,” Thompson says. “They’re not necessarily looking for advice all the time.”
This post was first published in InvestmentExecutive.com on October 20, 2016.