10 Pearls of Investing Wisdom
Originally published on Linkedin on 9th September 2022
Investing is both an art and a science. It tests our analytical skills, our intuition and perhaps most of all, our emotions. The global economy is an incredibly complex system that is riddled with uncertainty. It can be overwhelming for everyone involved - not least investors. Therefore, having a strong set of guiding principles to cut through the noise can make all the difference.
Here are 10 pearls of wisdom for investors:
“Time in the market beats timing the market.” – Ken Fisher. This illustrates the point that long term patience is more likely to bring greater returns than short term action. Most seasoned investors agree that market timing is virtually impossible. To paraphrase Terry Smith, "there are two kinds of people: Those who can't time the market and those who don't know they can't time the market."
“Markets can stay irrational longer than you can stay solvent.” – John Maynard Keynes. This is an important lesson for those who try betting against what they believe to be overvalued companies. You may be right eventually but the time it will take for you to be proven so can simply be too long for the gain to be worthwhile and may even result in dramatic losses. Hedge funds trying to short Tesla in 2020 was a classic example of this. $40 billion was lost because of it.
“Be greedy when others are fearful and fearful when others are greedy.” – Warren Buffett. Having this mindset of not losing your head while everyone else is losing theirs can enable investors to make more calculated decisions that lead to superior results.
"If you can't stomach 50% declines in your investment, you will get the mediocre returns you deserve." – Charlie Munger. This could be my favourite quote - it helps to remind equity investors what they are getting themselves into and that being able handle temporary drops in their portfolio should eventually be rewarded.
"In the stock market, the most important organ is the stomach. It's not the brain." - Peter Lynch. You can be the smartest person in the world but that goes out the window when emotions take over. On a similar note, Lynch also says, "the real key to making money in stocks is not to get scared out of them".
“If you can’t beat the market, be the market”. - Seth Klarman. This is a powerful quote that supports the argument for investing in low cost index funds. This is because the majority of active fund managers fail to beat the index and therefore most DIY investors are statistically better off in passive index funds unless they do tonnes of research.
“Knowing what you don't know is more useful than being brilliant.” – Charlie Munger. This somewhat supports the previous quote. Your results are likely to be better if you are honest with yourself about what you really know when it comes to what you are investing in. Warren Buffett calls it "knowing the edge of your competency".
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.” – Sir John Templeton. This is a very accurate and insightful way of summarising how stock market prices are largely driven by the emotions of crowds.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Benjamin Graham. This quote helps to illustrate that short term movements in stock prices are largely driven by people's predictions of the future. In the long run, the financial performance of the company itself will determine who is right or wrong and the share price will eventually reflect that. Therefore, the distant future matters most.
“Be extra careful when buying into companies and industries that are the current darlings of the financial community.” – Philip Fisher. This is an important lesson for investors trying to jump on the latest trend in share price movements. In 2020, it was the high growth tech stocks that did superbly well while the share price of oil companies performed dismally. In 2022, it has been completely the other way around. When particular companies and industries become very popular, one should only proceed with caution.
I hope these quotes were insightful. Please feel free to comment or get in touch.