The President of Secure Retirement, Richard Morey, spent over a decade studying the performance of every professional investor open to the public, looking for those who had both made the most money and had done so safely. He found that a small group of investors have soundly defeated the stock (and bond) market, during good times and bad, in some cases for decades. The discipline the greatest investors follow was originally created by Benjamin Graham. Along with managing money, Mr. Graham was also a professor at the Columbia School of Business, where he taught a young man named Warren Buffett. Mr. Buffett has expanded and refined this discipline, becoming in the process the most successful investor in the country. Over the last 54 years, Mr. Buffett has more than doubled the gains from the stock market. And over more than five decades, his company has lost value only two years! This is the same discipline we follow at Secure Retirement, and we have spent many years applying it to the management of diversified retirement portfolios.

There are five key principles to this discipline as it applies to managing diversified retirement portfolios:

1. Don’t lose money. Retired investors usually grasp the importance of this principle right away. If not, they typically figure it out the first time their retirement account suffers significant losses. But the investing public as a whole is under the mistaken impression that you make higher returns if you take more risk. This is what we are all taught. Upon closer inspection, you find this is completely wrong. In fact, what most people don’t realize is that you make much more money over time if you don’t suffer large losses during market downturns. Over the last 54 years, Warren Buffett has delivered higher returns than any other professional investor, and his first rule is: Don’t lose the money!  
Controlling risk is also our first principle at Secure Retirement. We use the most advanced mathematical tools to calculate the risk level in your portfolio. We then select funds and stocks managed by investors who have a long and highly successful track record of avoiding risk.

2. Only trust your money with unusually talented people. At Secure Retirement, we will not invest a penny of our clients’ hard-earned retirement money in over 99% of the mutual funds available. Instead, we search for remarkable investors. While Warren Buffett is our first example, through our research we have discovered a small group of equally talented managers who follow the same, unsurpassed discipline.

3. Do not “over-diversify.” Most professionally managed investment portfolios contain far too many mutual funds, stocks and/or bonds. As Warren Buffett has said, being over-diversified is a way to hide the fact that you do not have the ability to spot real value. Instead of investing in 15 or 20 mutual funds, or dozens of individual stocks, we only use the very best. We then allocate a larger percentage of our portfolios into these superior selections.

4. Hold the best investments for a substantial time period. Patience is a key to making money in the stock market. Once you have found the best investors, you must give them time to do their job. Instead, most people sell things that haven’t gone up as much lately (selling low) in order to purchase whatever has gone up the most recently (buying high). If the investments they sold were of the highest quality, invariably they find these going up – usually soon after being sold – while the new, overpriced purchases typically go down.

5. Ignore the short-term movements of the stock market. We all know the stock market goes up and down. However, it has gone up approximately 75% of the (rolling) quarters since 1928. At the same time, not one person we have ever found knows if it will go up next week, next month, or even next year. In order to be a superior investor, it is essential that you ignore the things you do not and cannot know. You have to be able to ignore today’s quoted price in favor of an intense focus on the actual value of what you own. Over time, the best businesses make a lot of money, and their stock prices go up commensurately. For those who can spot the best companies, this is nearly a certainly. Stock prices, on the other hand, can and do move very erratically, on a short-term basis, moved by factors having little to do with the underlying value of what you own. If a person can focus on the value of what you own instead of today’s price, you are highly likely to receive large returns from your best stocks over time.

Please note that there is an exception to this rule. If we see an economic collapse is imminent, we sell some or all of our stock-based investments, as we did the second week of September in 2008. We call this “catastrophic risk control.” Details on our complete program to control risk can be found in the article on Risk Control.

At Secure Retirement, we do not know what the stock market will do on a short-term basis. But we do know which investors are the most talented. And we know how to create portfolios at precisely the correct risk level for you and your family.

We have one final recommendation for you: carefully follow this discipline. This is what we do at Secure Retirement, and it has resulted in our clients attaining financial peace of mind throughout their retirement years.