Investing is both scary and confusing for someone getting its first dip into the investing world. However, things do not need to be so frightening. I came across an interesting article by Morgan Housel, long time columnist for The Motley Fool, talking about the “122 Things Everyone Should Know About Investing and the Economy”. I thought of sharing top 10 favourite from the list.
Hope it is as entertaining as educating.
103. Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports. “Read 500 pages like this every day,” he said. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
There is no secret to being a great investor. Like everything else that we do, we have to practice, practice, practice. There is no shortcut.
111. “Do nothing” are the two most powerful — and underused — words in investing. The urge to act has transferred an inconceivable amount of wealth from investors to brokers.
One of the key wrong assumption people has with investing is linking your performance with your activities. However, very often the investors who have the best performance are the one that trades the least.
88. Success is a lousy teacher,” Bill Gates once said. “It seduces smart people into thinking they can’t lose.”
Indeed, we often mistaken luck for skill.
70. In finance textbooks, “risk” is defined as short-term volatility. In the real world, risk is earning low returns, which is often caused by trying to avoid short-term volatility.
The first thing investors need to know is that what the industry meant by “risk” is wrong.
59. “We’re all just guessing, but some of us have fancier math,” writes Josh Brown.
We always have to be careful of who we listen to. Just because someone looks and sound confident when he speaks doesn’t mean he is right.
56. There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and a winning investment are two different things.
A rising tide does not always lift everyone. More often than not, it will devour everyone instead.
52. There is a strong correlation between knowledge and humility. The best investors realize how little they know.
The moment you feel that you know enough, you are bound for failure.
37. The S&P 500 gained 27% in 2009 — a phenomenal year. Yet 66% of investors thought it fell that year, according to a survey by Franklin Templeton. Perception and reality can be miles apart.
The difference between perception and reality plays out in many cases during investing. The investors that are able to tell the two apart will be wildly profitable.
19. Jason Zweig writes, “The advice that sounds the best in the short run is always the most dangerous in the long run.”
Staying invested might be the hardest thing to do in investing.
20. Billionaire investor Ray Dalio once said, “The more you think you know, the more closed-minded you’ll be.” Repeat this line to yourself the next time you’re certain of something.