Before you buy or sell any securities, make sure that your actions reflect your philosophy. If they don’t, ask why. Maybe you shouldn’t be buying or selling that security. Perhaps your action is based on short-term performance, or a hunch about what the market is going to do. But your actions should be based on your Investment Philosophy.
The Investment Selection Criteria section of your Investment Policy Statement includes your rules for choosing investments. These rules will vary significantly from investor to investor, based on each investor’s Investment Philosophy. Think of these criteria as a means of quantifying your philosophy.
Some criteria to consider for mutual funds:
  • Minimum category rating
  • Minimum total return % category rank over various
    periods
  • Maximum bear-market rank
  • Maximum percentage of assets in top-10 holdings
  • Maximum percentage of assets in any one sector
  • Maximum expense ratio
  • Minimum or maximum asset size
  • Minimum manager tenure
Any new investment you’re considering for your portfolio should meet these criteria. If it doesn’t, why not? Do your criteria need to be altered? Or is this an investment that you shouldn’t make given your philosophy?
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