“Better one safe way than a hundred on which you cannot reckon.” – Aesop (The Fox and the Cat, 6th century B.C.)
Whenever my friends ask about investment advice, I recommend they join the Oxford Club. It’s a membership group that has been helping individual investors for more than 20 years.
In a recent club communication, one of its investment advisors, Dr. Steve Sjuggerud, made the following three-part recommendation for “consistently outperforming the markets”:
1. Know your edge and don’t stray from it. To do better than average, you need to have an edge — some knowledge that gives you a truer, faster, or more “inside” perspective on what you are buying and selling. This knowledge can come from your own experience in business — by investing in companies like your own — or from the experience of following the advice of someone you can trust who has his own edge. Make sure that the edge is one that is based on real-life experience — not theory. And don’t wander off into new territory. Stick with what you know.
2. Have an exit strategy. Before you buy the stock, know at what price or under what circumstances you are going to sell it. For Oxford Club investors, Steve recommends selling his stock recommendations (1) when something fundamental changes within the company or (2) when the stock closes 25% below its closing high. (That’s called “a trailing stop-loss.”)
Going into an investment with an exit strategy affirms these important truths: You can’t predict the future, and your knowledge is imperfect. If the market moves against you, you fold. Only a foolish egotist would hold on to a stock after the market has proved that his belief in it was unfounded.
3. Stick with an investment strategy that is consistent with your beliefs. “The most common investment strategy I see from individual investors,” Steve says, “is cherry picking. They buy one stock they saw on CNBC, one because a neighbor said to buy, one that a newsletter guru recommended, etc. Cherry picking doesn’t work. What’s more, most individual investors cherry pick retroactively — after the trend. Their picks are not only mixed-up but also dated.”
If you read my recent series of messages on investing, you know I have essentially the same views as these. I’ve known Steve for some time and can vouch for his intelligence, his integrity, and his commitment to making Oxford Club members richer. Keep these thoughts in mind when you invest and you’ll have a distinct advantage.