Wanna Invest Successfully? Keep These 5 Things In Mind
The more you understand about your investments, the more you'll ignore them, the longer you'll hold them, and the more money you will make.
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Quotes
“90% of my job is stopping my clients from hurting themselves, from making stupid decisions.”
“You buy low and you sell high. Most people buy high and sell low.”
“I urge you first and foremost to keep a sign on your desk if you are an investor. Nobody has a clue.”
“Money is like a bar of soap. The more you handle it, the less you're going to have. (quoting the economist Gene Fama)”
“Making money is not about timing the market. It's the time that you are in the market.”
“Squirreling works. You may have a little less money to buy a latte. You may not be able to buy some trinket. Good.”
Takeaways
- 1 Humans are bad at investing because of psychology, not math. Dalbar data: over 20 years a 60/40 index returned 6.1% a year, but the average investor earned 2.5% (inflation was 2.1%).
- 2 Nobody can predict the short term, not even the Fed. In 2020 the market fell 34% in five weeks and still ended the year up 18.4%.
- 3 The long term is predictable, like weather in reverse: stocks have never had a negative 15-year period and were positive in 94% of 5-year periods. Over time they return about 6-7% above inflation.
- 4 Timing fails even when you're right: you sell, feel smart, then buy back higher or never. The market is forward-looking and often rallies during recessions.
- 5 Pessimism sounds prudent, but buying low only happens when the news is bad. After tax and inflation, "safe" 5% Treasuries still lose purchasing power, and trillions in sidelined cash tend to flood back in.
- 6 Greed hurts too: 40% of S&P companies since 1980 lost 70% and never recovered. One client's $20K stock grew to $400K and ended worthless. Don't be a stock picker; the seller is usually a hedge fund.
- 7 Conviction means knowing what something is worth, like your own house. With the whole market you're buying capitalism, and you can hold that forever.
- 8 Hedge funds lost Warren Buffett's 10-year bet against the S&P every single year: high fees, no liquidity and no transparency.
- 9 An advisor's real value is keeping you from panicking, plus taxes and estate planning. Risk tolerance is found in practice: a client who said 10% wanted out at 4%.
- 10 Dollar-cost averaging through a 401(k) bought all the way down in 2008-09 and returned over 35%. Parents who were an engineer and a teacher left real wealth just by steady saving.
Full episode
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