|  Joe Mansueto founded Morningstar , Inc., a leading provider of investment information and analytical tools, in 1984. Morningstar.com is listed among the top investing sites by The Wall Street Journal , Barron's , SmartMoney , Money , Worth and Kiplinger's Personal Finance , and is also named among the top 50 Web sites by CIO magazine. Mansueto received the Distinguished Entrepreneurial Alumnus Award from University of Chicago Graduate School of Business in 2000. Value investing and funds -
Apply a private company mentality to public company investing. Private company owners rarely buy or sell equity and, when they do, they know the value of their equity. A similar approach works well with public company investing: know the value of what you're buying and treat your holding as you would a family business by rarely trading it. Also, private company owners think about the worth of their shares at most once or twice a year. You'll do better with your public company investing if you adopt a similar mindset and don't obsess with daily fluctuations in value. -
If it's overly complicated and you don't fully understand it, avoid it. Only invest in things you understand and feel strongly about. If you don't have conviction when you buy it, there's a greater likelihood you'll sell at the first sign of bad news. As with most things, simplicity is a virtue in investing. -
Invest for the long term . Most real wealth is built from owning excellent companies for long periods of time. Frequent trading leads to frequent tax bills and frequent transactions costs, both of which can reduce long-term returns significantly. Give the exponential effects of compounding time to work for you. Take a look at your portfolio: how many holdings have you owned for five years or more? -
As long as you don't lose money, you won't have to worry much about making money. If your portfolio earns 50% one year and then loses 50% the next year, you're even, right? Wrong. Your two year return is still a negative 25%. To achieve a high return over a long period of time, focus more on minimizing mistakes. Ask yourself "what is the downside risk on this investment?" and leave a comfortable margin of safety. You needn't hit a homerun on every investment, but avoiding large losses will do wonders for your overall return. -
Buy great companies at reasonable prices. Look for companies that have high returns on capital, strong balance sheets, sustainable competitive advantages and shareholder-oriented management. Be patient and try to buy them when they are selling at a discount to their real worth. These opportunities don't come often, so buy meaningful amounts when they do. -
Don't worry about forecasting the market. Focus on a company's prospects and its valuation, not the overall market. No one knows where the market is headed over the next year, so don't concern yourself with it. And tune out the noise from those who claim - rather loudly, sometimes - that they do. If you're right in your company selection, you'll be fine in the long run. -
Think different. To do well as an investor, you need to have the insight and courage to invest differently than the crowd . It's easy and comforting to invest in what's currently popular and doing well - like technology stocks in 1999 and 2000. Being contrarian and following the less traveled path will lower your risk and give you the opportunity to outperform. -
Search for a few great managers and stick with them. On average, fund managers approximate the market because they are the market (or at least a significant part of it). Still, there are a few brilliant managers who consistently do far better than average. Search them out and invest with them for long periods of time. -
Don't pay active management fees for passive management by buying closet index funds. Many funds don't stray far from the component make-up of their passive benchmarks. This guarantees they'll never have terrible relative performance and hence increase the odds of holding onto their investors. In these cases, you're better off investing in index funds and lowering your expenses. -
Consider index funds for all or part of your portfolio. You'll certainly do better than the average fund by owning an index fund. The Vanguard 500 Index Fund, for example, has outperformed 80% of its peers over the last fifteen years. The compounding effect of your management fee savings translates into meaningful sums over the years. And you'll pay less to the tax man as well, since index funds have very low turnover . www.morningstar.com 'Don't be fooled by companies that boast investments by well-known companies like Intel and Microsoft. Both held big stakes in Lernout & Hauspie.' ”Herb Greenberg |  |
