Educated Investor - Investing is an art, not a science

In today's world of self-help media you would think the individual investor would possess better investment skills and display healthier returns than they actually do. After all, there certainly isn't a shortage of information available to the investor.

Just take a stroll down the financial planning aisles of a Barnes & Noble bookstore and you will find an ample supply of books dedicated to how to invest. Currently Suzy Orman, a popular financial planning author, alone must have at least five different titles on either financial planning or investing on the shelves.

Or tune your cable to CNBC and you can learn from all the professional money managers on just how to play the market. During certain times of the day you can even call in and discuss a particular stock with a well known money manager in order to get their buy, hold or sell opinion.

And if reading and watching television isn't your style just turn on your radio. I bet your area is carrying several financial talk shows throughout the week where you can get the beliefs of the local investment gurus.

Then on Sundays your local newspapers will flood you with investment articles of all types from either their staff or national writers. Syndicated writer Matt Lubanko offers a question and answer column while Andrew Leckey writes on various investment topics.

If the above sources aren't enough, you can always subscribe to Money, Smart Money, Barron's or the Wall Street Journal for more education. These publications offer a wealth of knowledge.

And finally if you don't have a life, you can always surf the Internet for hours on end. Every Tom, Dick or Harry has some type of advice for you both good and bad.

Yet with all these readily available resources, I still encounter individual investors that complain that they can't get good results when investing their own hard-earned dollars. They understand the fundamentals of investing, but their results are still disappointing.

Does this sound familiar? For the majority it does. Why? Because we are led to believe that investing is a science. It is a cause-and- effect situation. That investing techniques can be backed up with empirical data.

Unfortunately, investing is not a science, but rather an art. This means educational advice based on step-by-step procedures just does not work with any degree of accuracy in the irrational investment arena.

The art of investing is much akin to the art of painting. The artist learns the basics such as when you mix blue and yellow you will get green.

But the difference between the superb artist and the also ran is the artist's artistic touch. His visualization and how he combines the colors on the canvas separates the pro from the amateur.

The same holds true for the art of investing. The amateur has an understanding of price/earning ratios and book values, but it is a visualization of the company's future and the understanding of the underlying complexity of its financial structure that allows the successful investor to shine.

The true artists in the investment arena are few and far apart just like any successful artist in his or her field. Bill Miller who manages the $14.4 billion Legg Mason Value Trust has outperformed the S&P 500 Index for a record 13 years. That's not luck; that is creativity at its best.

Warren Buffet is another truly outstanding artist in the investment field. He has made many individual investors millionaires. His closed-end mutual fund, Berkshire Hathaway, sells at a premium to its net asset value.

This means investors are willing to pay more than what the sum of the parts are worth just to get a seat on his investment train.

So what can you as an investor do if you don't possess the necessary artistic abilities to invest? Obviously the easiest way to succeed would be to invest in Miller's or Buffet's mutual funds. Or you can keep your eyes and ears open and see just what these American idols are purchasing for their funds.

How do you know what they are buying? Probably the easiest way is to ask your broker or financial advisor. Or you could continue reading, watching and listening to the aforementioned resources and you will eventually hear about their buys and sells.

For example, Miller has been purchasing Eastman Kodak for sometime now. He still visualizes a bright future for Kodak. With EK at a 13- year low and paying a 2 percent dividend, the stock does look appealing.

The key to remember is that investment education is a must in order to survive in the investment field. But it is the artistic ability that will ultimately make you a superior investor and in the long run reward you with premium returns.

P.S. First quarter portfolio results are now posted on my Web site.

David R. Clogg, ChFC is an account executive at Chapin, Davis. He can be reached at 410-435-3200 or visit his Web site at www.theeducatedinvestor.info.

Copyright 2004 Dolan Media Newswires
Provided by ProQuest Information and Learning Company. All rights Reserved.