The Best Investment Advice I Have Received In A Long Time (Capital Preservation)

Capital preservation is an investment strategy that promotes avoiding loss, protecting capital and preserving value A key part of the capital preservation strategy is to reduce the risk level associated with investments. To do this, investors should look for good investments with the potential for significant increases in capital appreciation. A prime example of such an asset is real estate. When an investor purchases property, he or she uses it as collateral for one or more types of loans. The loan may be used to purchase residential property or may be used to finance a commercial property or any other type of investment all while the existing real estate appreciates in value.

Another important asset class used for capital preservation is bonds. Long-term bonds are ideal investments because they typically appreciate at a steady rate, which means that investors stand to gain a fixed return over time. As an alternative to this goal, the bonds may be used as a source of short-term income.

In addition to long-term bonds, another important area for consideration in capital preservation is stock market investing. One of the ways to achieve preservation of capital is to purchase defensive stocks, which are those stocks that are purchased to protect the underlying stock price.

Warren Buffett is widely considered to be the best investor of all time. Over his 50+ years at Berkshire Hathaway Buffett has generated 20.5% annualized returns for shareholders. To put this in perspective, consider that a $1,000 investment in Berkshire when Buffett took the reins would have been worth a staggering $24.7 million today.

How did he do that, indirectly through capital preservation. Don’t believe me…Buffett has over 100 investment quotes that he has said one time or another. However, he is best known for:

"Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1."

Buffett believes it incredibly important to keep capital preservation at the top of your priority list when deciding how to invest your money.

Some of the best investment advice I recently received was from Alexander Ely. Alexander is a graduate in economics from the University of New Hampshire and now manages the Delaware Smid Cap Growth Fund DFCIX. It’s worth noting Alexander has beat his Morningstar mid-cap growth category and Russell mid-cap growth index by about 18 percentage points and 10 percentage points, annualized, over the past three and five years.

He offers the following advice:

• Invest in disruptive companies.
• Invest in leaders.
• Keep risk on a tight leash.
• Go for growth.

• Don’t trade

“The biggest mistake people make is trying to trade,” says Ely.

Spend any time on Twitter market threads, and it’s clear that a lot of people are making this mistake. The problem with trading is you are betting you will be right not just with the entry, but also on the exit price —- and doing this over and over. It is not easy to be right so often.

Instead of trading, he prefers to own “one decision” names, meaning disruptive companies.

“I am trying to hold the best names, and let them work over a long time,” he says. “Every great growth company has been a leader and major disrupter of an industry.”

Source

As a read his advice all I could think about was Square, Tesla, Amazon, Elon Musk, Jeff Bezos and Bitcoin. If you think about it each of his pieces of advice is a form of capital preservation.

Capital preservation can be an effective means of managing your investment portfolio. However, it is important for one to remember that there are several considerations he/she needs to make before selecting capital preservation strategies. These considerations include the nature of the assets being managed, your level of experience in investing, your level of risk aversion, and your time horizon.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

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