Investing Boils Down to 4 Principles Like Hockey Boils Down to the Fundamentals of the Game

Written by The Dividend Guy on July 7, 2008

Investing Fundamentals

In very volatile markets like the ones we have been experiencing, dividend investing can seem like a daunting and impossible task. No matter what we do, our portfolios continue to decline along with the markets. However, it is in markets exactly like these that stock market investors must boil investing down to its most basic fundamentals. Think about it with a sports analogy in mind.

If you have ever watched an NHL hockey practice, you will notice something very interesting. During the practice, only a small amount of time is spent on learning and practicing advanced concepts such as complex formations and detailed plays. Instead, the team spends most of their time working on the true fundamentals of the game - skating skills, passing skills, and shooting skills. When it comes to game time, these fundamental skills will be what separates the good from the best. Without an emphasis on these principles of the game then no amount of fancy playwork or strong power plays is going to help. The coaches know where to spend their time.

If we take this back to investing, then it is easy to see that most of our time as investors should be spend on the true principles, or fundamentals of the game. We can spend a tonne of time searching for the right stock or ETF to hold in our account, but without the following principles as a base then we will never be the best investor that we can be. So what are these principles - here they are:

1. Invest regularly
2. Diversify into a strong asset allocation
3. Reinvest dividends and earnings
4. Choose quality growth stocks and ETFs to fill out your asset allocation

In my opinion, these are in order or importance and the most time should be spent on the first two. Having a regular and systematic investment plan is crucial to ensure you meet your goals. Once that is in place then getting that money allocated across a number of assets to ensure diversification. Once that is in place and you portfolio is starting to do its work and throw off dividends and capital gains then that money must be reinvested. The least important principle is stock selection (stocks, ETFs, index funds). That does not mean that you should ignore it - it is still a fundamental just as passing in hockey is and needs to be developed.

So when your portfolio is down and it seems like nothing is going right, make sure you are focused on the above fundamentals. Stay away from the fancy footwork until you know how to skate!


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3 Comments so far

  1. Alex July 7, 2008 10:52 pm

    Excellent content - as you always provide and inspires me to come again and again.

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  2. Bob July 7, 2008 10:53 pm

    I agree with you on this and Direct Stock Purchase Plans can make this easy to do.

    1. Invest regularly (with DSPP you can choose to have monthly deductions taken out of your checking account to invest in stocks of your choice.)
    2. Diversify (with DSPP you can have lower fees since no broker is involved and some companies pay the fees for you.) so you have more money to diversify your portfolio.
    3. Reinvest dividends (most companies with DSPP also offer dividend reinvestment.)
    4. Choose quality growth stocks (I have put together a free list of close to 200 companies that offer DSPP.) feel free to visit at www.aplussrc.com

    My total fee per share cost is at .34 at this time and going down each month.

  3. Credit Card Brains » Carnival of Personal Finance #161: The “Feeling Renewed” Edition July 15, 2008 10:50 am

    […] The Dividend Guy spends some time reflecting on the fundaments of investing. […]

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