ave you ever dealt with documents overloaded with numbers, jargon, and charts that you can’t just seem to make sense of anything? Or have you had a shopping experience for a gadget where your salesman gave too many information for each product that you ended up buying nothing or worse, buying the wrong one?If these situations ring a bell to you, don’t fret. I’ve had my share of bad decisions based on cluttered ideas, information and biased suggestions by some people around me. Thank goodness nothing of sort has greatly affected my personal finance — so far. And this is what award-winning financial analyst Andrew Stotz wants us to prevent. Hence, his second investment principle: Simplicity beats complexity.
I could not agree more when he uttered “More data does not mean better decision.” I believe many of us at some way or another have peers who keep their entire Facebook community updated with recent stock buys and sells, share Bloomberg stories in the news feed, upload economists’ commentaries online, and the likes. We might all have that friend who’s entertaining all of these “noises”, as Mr. Stotz puts it. It’s easy to assume that friend is one of your smartest buddies, right?Apparently, for Mr. Stotz, it is not always the case. Sometimes, these people are the ones who lose more than win because of trading excessively, obsessing with latest company annual reports, and so on. For the average Joe who has no time, interest and knowledge in actually picking stocks on their own, it would be best to own a mutual fund, preferably passive funds. For people who are confident with their stock-picking skills, keeping a portfolio with 10 stocks is the best way to go to be diversified. Both alternatives diminish risk in the long haul, company specific risk as well as stock market risk.Mr. Stotz also challenges us to be more detail-oriented when dealing with financial products. We have the right to ask our agents or brokers all that there is to ask about the product. In my case, as a twenty-something woman, I am not afraid to look ignorant when trying to find out from my bankers where my money goes. I prepare questions before meeting with any agent, read blogs of people who purchase/subscribe to the same product, and look for other competitive offers.
Do not make any financial decision because you’re intimidated by huge amounts of data, particularly with numbers, and vague promises. An ethical broker won’t find you annoying as long as you keep your mind open. Keep things simple but informative at the same time when fed with information overload. Never be afraid to ask for clarifications!Danielle covered the three-day university tour of Andrew Stotz in the Philippines from October 2 to 4, 2014. She will discuss each of Andrew’s 12 investment principles from her perspective. All articles will be posted here on www.andrewstotz.com.