A key ingredient to investing success is confidence. Not over-confidence, but confidence based on deeply-held and well-researched beliefs.

One of our greatest value-adds is helping our clients develop and maintain an investing philosophy, through thick and thin.

If you don’t have a philosophy you will stick to, you’re doomed. Here’s why.

Let’s say you decide you’ll put 1/3 of all your stock investments into non-US companies. That’s a logical decision for a US investor. You’re diversified. After all, non-US markets represent almost half the world stock market.

Now let’s imagine US stocks do better than non-US stocks for almost every year over a decade — which is what has just happened. All your friends who only own US stocks are doing better than you are. The TV “experts” all dismiss non-US markets as risky backwaters. What will you do? Most people will sell. That’s because they don’t really believe in their mix of investments. They just bought what a few people suggested, without much thought or research.

The fundamental problem: investing cycles are long. They last and last and last. So, if you don’t believe in your investing philosophy — if you don’t really believe — you’ll give up just as the cycle is turning. (An aside: investing cycles resemble fashion cycles for someone like me. I’m still wearing pleated pants. I recently learned they went out of fashion several decades ago. This came as a surprise. I am ignoring it.)

The Wall Street Journal had an excellent article on the US vs. non-US stock comparison a few weeks ago. It showed how much better US stocks have done from today’s vantage point. Only seven years ago, the opposite was true. Few people remember that. So, they are likely to throw in the towel just when they should hold on. Here’s a link to the article.

The lesson: before you invest, develop a philosophy you can really believe in, or find an advisor who can help you. Otherwise, you won’t navigate the market’s long, unpredictable cycles.