“When buying stocks, search for bargains among quality stocks.” Sir John Templeton

In the late 1990’s a group of brilliant, experienced financial experts joined forces and formed a trading company.   They developed elaborate trading strategies focused on finding disparities in prices.   They exploited those differences making a small profit per trade but millions of trades.  Then they leveraged borrowing more and more money.

They were making millions then guessed wrong. They tweeked their system then guessed wrong again.  Because they were so highly leveraged it magnified the losses.  Suddenly they were out of cash.  They couldn’t pay what they owed and imploded.  By this time they controlled billions of dollars in assets much of which was concentrated in developing countries.  There was potential of a worldwide recession being triggered.  Without announcement or press coverage the Federal Reserve stepped in and propped up the loans so they could unwind their fund in an orderly way.  They closed shop, wiping out the investors.

In contrast there are thousands of businesses in our country that make lives better every day.  That’s what leads to truly successful businesses.  Think about the companies you rely on.  Your grocery store, cleaners, gas station, department store, favorite restaurant, movie theatre, pharmacy, hardware store.

All of us would find life more difficult without them.  They produce goods and services we need.  The ones that do it well thrive.

Typically, when investors get burned it’s because they invested with companies that offer nothing except an investment scheme taking advantage of someone else.  The pitch is you can get rich quick using a mysterious trading system.   And the guru or manager will let you in on his secret for a fee.

Usually these schemes involve leverage, borrowing money, to magnify the results.  Unfortunately it magnifies them down as well as up.

How do you know what is a scam and what isn’t? How can you be sure that what you invest in isn’t just gambling?

The Bible says, “The plans of the diligent lead to profit as surely as haste leads to poverty.” (Proverbs 21:5, NIV)

And “He who pursues righteousness and love finds life, prosperity and honor.” (Proverbs 21:21, NIV)

The contrasts are clear.  A person or company can work diligently, producing goods and services that help others and if they truly do bring benefit they will profit.  Others follow the opposite way trying to get rich quick and do it in ways that take advantage of mistakes.  They eventually end in failure and dishonor.

These passages are applicable in how you live your life, run a business, who you work for, and what you invest in.  Look at the character and the intent to anticipate the outcome.

So how do we apply this to investing? I call it “investing to make a difference.”  In other words make your investing an extension of your life.  Use it to make a difference in this world and expect the promise of prosperity and honor.

First, put your money with money managers who invest in companies that produce goods and services that really serve people.  This will help steer you away from trading strategies where portfolios blow up.

Second, investigate these companies and managers.  With the internet you can find this information in a number of places.  What do they do?  What are their products?  Do you feel good about investing with them?  Are they making a positive difference?

By the way we don’t live in a perfect world.  Some managers may invest in companies that have as a minor part of what they do something you don’t agree with.  In reality it may make up one percent of your portfolio.  You need to decide if the other 99 percent makes up for it.

Third, look at the manager’s philosophy.  How long have they been in business?  How do they manage money?  How do they select their investments?

Fourth, does the manager trade in and out often?  Look at their turnover number.  You want to be aligned with a manager who believes in the companies he invested in and stays invested for the long haul.

Will this guarantee you can’t lose money. Of course not.  Investments in the short term go up and down and all companies can still make mistakes.  But it will help you avoid aggressive strategies which so often blow up.  That alone can make a huge difference.

Think of your investing as an opportunity to make a difference not just a way to make money.  It can provide you a sense of satisfaction as well as sound investment returns.

Are you making a difference with your investing?  Let me know what you discover.

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This series is based on “16 Rules for Investment Success” by Sir John Templeton, legendary investor and money manager.

Important Disclosures:

Douglas Armey, the LPL Financial adviser associated with this website, practices in Fresno, California and may discuss and/or transact business only with residents of the following states:  California, Idaho and Oregon.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results.

Securities offered through LPL Financial, Member FINRA/SIPC.  Member of Securities Investor Protection Corporation (SIPC).  For an explanatory brochure please visit www.sipc.org.          www.finra.org