The Ten Commandments for Managing Investments

6 Pages Posted: 18 Feb 2009

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: February 13, 2009

Abstract

Stress and distress are unavoidable aspects of dealing with the vagaries of financial markets and financial advisers. The purpose of this paper is to try to reduce the discomfort in dealing with investment advisers, and to make the journey up and down the financial mountain a little less stressful and more rewarding. The commandments deal with defining investment policies precisely, diversifying asset classes, choosing a consistent benchmark for investment policies, structuring precisely the asset allocation process, defining risk and risk management procedures, monitoring the portfolio carefully, matching the allocation and investment horizons, being active or passive according to investment policies, being agnostic about model forecasts, and being aware that, while buy low and sell high is a truism, investors and financial advisers are only human, and therefore make mistakes.

Keywords: Ten Commandments, managing investments, investment rules, risk management, financial advisers, portfolio diversification

JEL Classification: G32, G11, G17

Suggested Citation

Caporin, Massimiliano and McAleer, Michael, The Ten Commandments for Managing Investments (February 13, 2009). Available at SSRN: https://ssrn.com/abstract=1342265 or http://dx.doi.org/10.2139/ssrn.1342265

Massimiliano Caporin (Contact Author)

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan