Investment Policy

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Robert T
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Investment Policy

Post by Robert T » Mon Apr 02, 2007 11:05 pm

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IMO a written investment policy (plan) is an extremely useful tool to help ‘stay the course’. Here is what Charles Ellis had to say in his classic book “Winning the Loser’s Game”. I found these useful (my bold), hope they are useful to others.
  • 1. The high purpose of investment policy, and of the systematic discovery process prerequisite to it, is to establish useful guidelines for investing that are genuinely appropriate to the realities both of your own investment objectives and of the realities of the investment markets.

    2. The usefulness of investment policy depends on the clarity and rigor with which investment objectives, and the policy guidelines established to achieve those objectives, are stated and consistently used.

    3. For investors, the real opportunities to achieve superior results lies not in scrambling to outperform the market but in establishing and adhering to appropriate investment policies over the long term…

    4. The principal reason you should articulate your long-term investment policy explicitly and in writing is to protect your portfolio from ad hoc revisions of sound long-term policy by helping you adhere to long-term policy when short-term exigencies are most distressing and your policy is most in doubt.
And Roger Gibson had this to say in his book on Asset Allocation
  • 1. An IPS [investment policy statement] provides a defense against “Monday morning quarterbacking” where prior investment decisions may be second-guessed.

    2. It supports a disciplined, consistent execution of the portfolio’s investment strategy. This is particularly important during extremely good and bad capital market environments…
Both Roger Gibson (in Asset Allocation) and Frank Armstrong (in The Informed Investor) provide a sample of an Investment Policy Statement as an annex, which may be useful. However, some personalization will likely be needed to get the preferred level of clarity and rigor.

Robert

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M* Investment Policy article

Post by Robert T » Thu Apr 05, 2007 11:39 am

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I saw this article by Sue Stevens posted today on the M* website.

http://news.morningstar.com/article/art ... d=wwhome1a

“Do you want to know the real secret to successful investing? It's a deceptively simple little thing called an investment policy statement.”

Given the importance of an IPS, its interesting that there are only a few samples provided in the many investment books available today. IMO what would be useful is for a book to be structured along the format of a ‘sample’ IPS. i.e. Chapter 1: Investment Objectives (examples for retirement, college, etc. and associated savings and investment returns needed),…2. Investment Philosophy (efficient market debate etc), 3. Portfolio Construction (how to align asset allocation to acheive investment objectives) etc… with a sample IPS (or more – for young, midlife, retired) presented as an Annex. If I recall Larry had some plans for such a book (but to focus on institutional investors) – not sure if that is progressing.

Apologies for the double post on the subject - but thought the linked article could be useful to some of you.

Robert

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