Sunday, November 28, 2010

It's like making a cake

      Cake Ingredients at Dean and Deluca, NYC, October 2010

Investing is like making a cake.  For the best results you need to have a range of good quality ingredients, you need concentration  and a steady hand, you need a constant temperature - and most of all you need patience.

This is my conclusion after reading two interesting pieces today.

The first was a New York Times  article by Ron Lieber  on November 26, 2010 headed "A Dying Banker's Last Instructions".  Gordon Murray - a 25 year banker with Lehman Brothers and Credit Suisse First Boston - has terminal brain cancer - and has used his remaining months to write a book "The Investment Answer" with his co-author Dan Goldie.

The book is a lesson on patient asset allocation instead of trying to beat markets.  And summarises some sound principles:

1.  Hire an advisor who is paid by you, not the funds you are investing in.
2.  Divide your funds across both multiple assets (stocks and bonds).
3.  Spread across the globe - diversify your country risk.
4.  Choose passive funds (like index funds).  Few managers can beat the market.
5.  Re balance by selling your winners and buying more of your losers (if you have done 1 - 4 above, and this is hard to do).

The second piece was written by Deborah Nason in Investment News on November 28, 2010.  Nason describes some new funds that have been established for investors who wish to invest in local food systems and local economies close to them and are patient with modest returns.  She describes some funds established by RSF Social Finance which seek to invest in local sustainable food production businesses.  RSF report a 30% per annum growth in client numbers.  Their investors are not expecting double digit returns, and are concerned by climate change and carbon footprints.

Can you see why these two stories synthesised for me?  Have patience, mix your investments around, read some good recipes and listen to good advice, support your passions and convictions (great to invest in local sustainable food production systems!) and don't listen to people who are promising they can beat the market or who are being paid by the funds they trying to sell to you.  Pay for good advice and be patient with steady returns.

Like a lovingly baked cake - your investments will do fine.