If
you have a lot of clarity about what is really important in life, you
might even understand why it is that you have the goals that you do. If
you understand your purpose at that level, your goals form the anchor
for the financial planning process. When the wind blows hot or cold
around certain market sectors, goals provide the reason to stay on
course. Goals establish horizons and dictate the technical means to
achieve the ends. Modern portfolio theory is important in all
markets. Diversification is a must, and asset allocation is critical.
Don’t throw away modern portfolio theory during a bull market or a
bear market. And watch for people starting to justify investments with
statements like, “Internet stocks don’t need revenue to be valuable.”
Or, “It doesn’t matter what rent I could get for this condo.” Valuation
rationalization is an early sign of a bubble.
It is argued
that experience is the hallmark of the best investor. To me, experience
is strongly linked with clarity of purpose. No one has more experience
with understanding his or her own goals than that specific individual.
If the investments you own don’t match the needs you have, you need to
change investments. On the other hand, if your investments match your
needs, think twice before you change your portfolio in response to a
“flavor-of-the-month” that appeals to the herd. Conrad
Ciccotello is an associate professor of risk management and insurance
(RMI) at Robinson. He is also the director of RMI’s Graduate Personal
Financial Planning (PFP) Programs. A graduate of Suffolk Law School and
a member of Pennsylvania and Supreme Court Bars, Dr. Ciccotello earned
his Ph.D. in finance in 1993 from Pennsylvania State University. He
makes frequent appearances on Atlanta television, addressing various
issues related to personal finance.
Office of Communications and Marketing
Robinson College of Business
Atlanta, Georgia 30303
Tel: 404-413-7080; Fax: 404-413-7076; E-mail: Communications
If
you have a lot of clarity about what is really important in life, you
might even understand why it is that you have the goals that you do. If
you understand your purpose at that level, your goals form the anchor
for the financial planning process. When the wind blows hot or cold
around certain market sectors, goals provide the reason to stay on
course. Goals establish horizons and dictate the technical means to
achieve the ends. Modern portfolio theory is important in all
markets. Diversification is a must, and asset allocation is critical.
Don’t throw away modern portfolio theory during a bull market or a
bear market. And watch for people starting to justify investments with
statements like, “Internet stocks don’t need revenue to be valuable.”
Or, “It doesn’t matter what rent I could get for this condo.” Valuation
rationalization is an early sign of a bubble. 
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