BY LYNN LIU
Global Business Journalism reporter
Financial markets are far from predictable. That’s what makes investments (and covering investing) hard, according to Carl Stuart, president of Carl Stuart Investment Advisor, who shared his investment philosophy during a recent Zoom lecture to students at Tsinghua University.
“For every asset class cycle, no matter what it is – stocks, bonds, commodities, real estate, we don’t know where we’re on the cycle. We don’t and we never will,” said Stuart, who lives in Austin, Texas.
Stuart has been in the financial advisory profession for 43 years, during which the OPEC oil embargo in the 1970s, central Austin’s housing market booming in the 1980s and the world economic recession in 2008 all marked his career path, as well as the U.S. stock history. Let’s get into lessons he learned from his experience.
#1 When approaching investing, the single most important attitude is humility.
Even economists find it nearly impossible to predict financial crises with models or other tools. In the 1990s, the rapid growth of Dell, among other technology companies which took leadership in the U.S. stock market, let many consider gains from its stock a major contributor to their retirement plan with huge confidence. Yet, Dell’s stock plunged to $10.50 when Michael Dell took the company private after it had skyrocketed from about $1 to $70.
Another incident in the U.S. stock history would be the spread of the coronavirus. On March 23, 2020, when news got worse and thousands of people showed up in hospitals and died while the stock market took off and went up almost 100%. The point is, you don’t invest looking at the headlines.
#2 Understand what your anticipated holding period is.
It’s essential to be clear how long you are going to hold the stock. And this depends on what the money’s for. For Stuart, there are three different capital chunks: money for rent and groceries (which should be immediately available and not vulnerable to risks); money saved for trips, mobile phones, among other purchases in the near future; and capital that supports one’s financial independence goal, which requires a much longer (five years or more) holding period.
It’s interesting to note that a corporation’s good performance on the market or excellent prospect doesn’t necessarily equate to the upward trend of its stock in a relatively short period of time.
#3 Diversify your stock choice.
For individual investors, the key is to diversify your stock by industry or category. If the oil prices fluctuate rapidly, the energy stocks would be greatly affected. For unexperienced or new investors, putting your eggs in different baskets would be the best choice that could keep a balance between gaining profits and keeping risks. However, for those who have deep knowledge in specific fields, for example, if you work in the biotech industry, then you may trust your own philosophy in investment.