The Prudent Investor

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From the Editor - January 05

The commentary below is from our monthly newsletter and is provided here as a convenient reference for our readers.

Thank you for taking time to read the first issue of The Prudent Investor newsletter. This newsletter is designed to help the “typical investor” (if there is such a thing) navigate the sometimes-treacherous waters of managing their hard-earned investable income. Promises abound from Wall Street gurus and pundits, all promising great riches. You’re smart enough to know that many of these self-proclaimed “experts” are probably not to be trusted. But who to trust?

Here at The Prudent Investor, you’re not going to hear bloated promises of “get rich quick” strategies. We think any fund manager, newsletter, or investment advisor should be evaluated, not on their words, but on their actual performance over time. Even this can be difficult. Market investment strategies abound. Almost all work some of the time, while few (if any) work all of the time. Ultimately, you must seek to understand the investment strategy of anyone who offers you investment advice or insights, and decide whether their strategy makes intuitive sense to you. Time will always ultimately tell whether their investment philosophy and style were correct.

Why the Name?

You may wonder why we selected the name “The Prudent Investor” for our newsletter. It is because we believe that is exactly what every investor should seek to be—“prudent.” Our view of prudence in investing is that one makes appropriate, and informed, investment decisions based on market conditions and economic outlook. When the investment horizon looks bleak, prudence will dictate a “conservative” stance. When the opportunity to achieve an attractive investment return is likely, prudence may support an “aggressive” stance. But prudence is neither “conservative” nor “aggressive.” It is making the right decision at the right time.

Over the next several months we will explain our investment strategy to you in order to increase your confidence that The Prudent Investor can guide you through the murky, sometimes dangerous, waters of investing. You will find our guiding principles to be intuitively simple and fundamentally sound. They will be principles that will serve you well as you seek to manage your hard-earned funds.

What Can You Expect?

First, what you should not expect. You should not expect bold predictions about the future direction of the stock market, or grand promises of success in following our Model Stock Portfolio and Asset Allocation Model. We will occasionally give commentary on market conditions, but clairvoyant predictions of the market’s direction (especially short-term) are nearly impossible to make with any accuracy.

Instead, what you will find with The Prudent Investor is sound investment advice that takes into consideration the current market environment and conditions. We will not try to predict “the next new thing” for investment purposes. Rather, we will point to existing companies that show promise of above-average returns over the next 3-12 month period. We are not “buy and hold” investors in the traditional sense of the term. Neither are we “day traders,” trying to profit on ultra short-term stock moves. When we purchase a stock, we do so because we have good reason to believe it is currently selling at a discount to its fair market value. We are willing to hold the stock, once purchased, for 3 days or 3 years. We will only sell the stock if or when it reaches our estimate of its fair market value (and this number is a moving target, since we continually monitor the underlying company), or if another stock comes along that looks substantially more attractive. For most of our holdings, we buy on major price dips and sell on major price rallies. Most investors inadvertently do just the opposite, leading them to poor investment returns over time.

Your Feedback Welcomed

Over the next several months we will be refining the format and content of this newsletter and would welcome your feedback. If you have suggestions for us, or compliments (always welcomed) or even constructive criticisms, we invite you to let us know. Writing a newsletter is always a great challenge because the reading audience ranges over such a broad spectrum from advanced to novice investor. Our goal, though difficult, is to appeal to both the advanced and novice reader. With your feedback, we may be able to achieve this.

Thanks again for reading this inaugural edition of The Prudent Investor. We trust you will find our newsletter a valuable aid to your investment decisions.


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[January 05]