New Year’s Investment Resolutions – #4

Thursday, December 31, 2009

Number 4Continuing with my favorite resolutions this week – ones that work in all markets – here is my last, number four.

At the beginning of my career, forty years ago, I was a stockbroker. We had a number of sound investing tools to help investors, most of them dealing with how to invest sensibly. My favorite has remained the following. Although simplistic looking, its vital message is frequently forgotten or ignored.


This triangle shows that investors cannot have it all. It is impossible to find an investment that can be expected to provide high income with safety, high growth with safety, or both high income and high growth. We must choose. Usually, that means pursuing a mixture of the three, perhaps with a weighting towards one at the expense of the others.

(Yes, there are investments that produced desirable combinations after the fact. But those results were unexpected, just like the investments that – after the fact – failed to produce expected results.)

Remembering this fundamental income/growth/safety tradeoff is especially helpful whenever you hear about an investment that seems to be an exception. If it were truly exceptional, the price already would have been bid up. If the price is not up, then something is amiss, so forget it. (And I do mean walk away – don’t get caught up in the analytics and sales pitch. Remember: Figures don’t lie, but…)

This leads to our fourth, and final, resolution:

#4 – I resolve to always expect a sensible combination of income, growth and safety from my investments.

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John Tobey on Seeking Alpha

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December 2009