The Importance of Having Investment Principles

One key to investing successfully is having time-tested investment principles in place that you follow consistently over time. Financial success and independence look different for everyone. However, proven investment principles and wealth building strategies can be the same for you as they would be for Bill Gates or Warren Buffet.

A principle is a:


  1. Fundamental truth or proposition that serves as the foundation for a system of beliefs or behaviors and/or for a chain of reasoning.
  2. Rule or belief governing one’s own personal behavior.


Investment principles seem to be quoted everywhere. They are usually at the front (or near the front) of most marketing brochures and/or websites. This is because they are extremely, extremely important. I contend that one of the most important questions you can ask a financial advisor you are considering working with is this: “What are your investment principles and please explain them to me?”

One of my most memorable ‘ah-ha’ moments on this subject came when I was in San Francisco in the mid 1990s. I was a participant in an important meeting that Charles Schwab & Co. was hosting. Let me share the moment. Charles Schwab had a few hundred branches across the country. This was a three-day annual meeting for Branch Managers in San Francisco. We had just begun giving investment advice to clients a few years earlier. One of the questions we were struggling with answering in this new world of providing this advice was – “What can we say and what should we not say to clients to help them with their investment decisions?”

Sound like an easy question to answer? Trust me it wasn’t. We needed to be able to provide a guideline that was broad enough to help clients and narrow enough to ensure we could train all the advisors so they could give good actionable advice to clients across the country. Therefore the sessions addressing this subject were very lively. Charles Schwab was actively running the company at the time and seemed to sense this, because during one of the Q&A sessions he shared a list of seven “Rules of Thumb for Investing“. Basically they were investment principles. The seven Rules of Thumb eventually became the Ten Investment Principles that Charles Schwab & Co. uses today. Some of these principles, along with a few I’ve added myself, have guided my investment decisions ever since.

I have listed mine below (with a few other investment principles) to give you some specific examples. I have come across hundreds of such principles in my career, and these are a few of the better ones I’ve encountered. I want to make it clear though, you need to have your own four or five principles that guide your investment decisions. And you need to believe them to your core!

There is not a secret book or an all-knowing place to go and find investment principles. You will also find that these principles must be used in combination. Success won’t come from using just one.

Again, four or five personal investment principles used in HULT PRIVATE combination and consistently over time will greatly improve your chances of becoming financial successful. They will become your ‘lighthouse in the storm’ and trust me, there will be storms. Investment principles are why some people seem to move from one market crisis to the next experiencing minimal stress.

Here are a few examples of investment principles

Invest for the long term – To quote Warren Buffet, “Our favorite holding period is forever.” Though this is not always advised or practical, it is a great long term view of investing. Looking at investments from a long term perspective is an investment principle we strive to adhere to, although we will review and monitor all investments for changes in their fundamentals to ensure they are investments we should continue to hold.

Do not time the market; always be invested – Timing the market is very difficult. When timing the market, the challenge is you need to be right twice – knowing when to get out, and then knowing when to get back in.

Know your risk tolerance – This is the foundation to having a long term view. If a client knows his/her investment tolerance, they are not making emotionally charged decisions to get in or out of the market at the wrong times due to volatility.

Be an investor, not a saver – An investor takes into account risk/reward and real rates of return after inflation, while a saver is only focused on safety of the principal.

Concentration creates wealth, diversification preserves wealth – It is okay to have concentrated positions at different times in a person’s life. This is how wealth is created in many cases, although it must be done at a time when a client has income, other assets, and time. It also needs to be done consciously.

Some debt is good, but most debt is bad – Good debt used correctly involves purchasing something that is likely to hold or increase in value such as a home mortgage. Bad debt is when a person uses it on something that can be consumed.

Investing is not a game – Many people think of investing in the same way they think of sports or gambling – as a game. Watch CNBC for a day and you’ll see what we mean; it is not much different than watching ESPN on any Sunday during football season. But investing is not a game and should not be viewed as such.

Patience is key – Allow time for your investments to grow. Benjamin Franklin was quoted as saying, “Compound interest is the eighth wonder of the world,” while Albert Einstein said, “Compound interest is the world’s greatest discovery.” In either case, time and patience are keys to building wealth and leveraging these investment principles.

Leave a Reply

Your email address will not be published. Required fields are marked *