Help, I m Rich!: Your Compass to a Value-Adding Private Banking Experience

Chapter 5 The Essence of Discipline

Managing assets requires discipline, investment rules, and principles to make the investment process more predictable and transparent.

For this reason it is, prior to initiating the actual investment process, important to agree on:

• The asset classes, investment instruments, and products that will be selected throughout the investment process
• The asset allocation approach
• The investment style
• The approach to rebalancing
• The chosen benchmark
• Specific investment constraints and restrictions
• The use of stop-loss orders
• The approach with regard to taking profits
• The currency hedge methodology, if any
• The liquidity expectations of the investment portfolio
• The use of short-selling in the portfolio

Professional asset management is not just about picking the right investments and mitigating the risks that come with the investments. It is also about discipline. The purpose of investment rules or principles is that they avoid investment decisions being dependent on the mood of the investment manager. The rules and principles guide behavior, hence making this behavior more consistent and more predictable. The clearer the rules, the lesser the room for interpretation, the faster you can make investment decisions, the easier these decisions can be understood, and the less these decisions will—and even can—be disputed. Higher predictability of investment behavior benefits the transparency of the investment process.

Investment Rules and Principles ...