100+ Great Investors Share Their Most Important Investing Lesson
Jan 4, 2024
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Renowned investors including Guy Spier, Rob Arnott, Michael Mauboussin, Steve Romick, Joel Tillinghast, Cem Karsan, Bob Ellott, and Jerry Parker share their most important investing lessons. Topics covered include self-forgiveness, action, and diversification, the importance of knowledge and flexibility, avoiding natural investing mistakes, analyzing the truth and geopolitics, investing in real opportunities, thorough homework and independent research, the significance of rebalancing, finding your investing philosophy, understanding the importance of perspective, the importance of price confirmation and having an open mind, maximizing contributions to retirement accounts, and teaching children about investing.
Investors should be kind and forgiving towards themselves, learning from mistakes and taking positive action.
Diversification across assets and strategies mitigates risk and maximizes market opportunities.
Clear understanding of investment strategies and self-awareness reduces unnecessary risks.
Continuously learning, remaining flexible, and reassessing strategies are vital for navigating changing market conditions.
Continuous evaluation of portfolio positions based on current risk is crucial, not past performance.
Having a suite of tools that align with your investment style and inform biases helps in decision-making.
Deep dives
Importance of Self-Kindness and Forgiveness
It is crucial for investors to be kind and forgiving towards themselves. This includes acknowledging that mistakes will happen, learning from them, and not letting past failures prevent future action. By forgiving ourselves for past errors, we can continue to take brave and positive investment action.
The Significance of Diversification
Diversification is key for building durable wealth over time. It goes beyond holding a mix of stocks and bonds and involves diversifying asset class exposures as well as strategy exposures. By diversifying across different assets and strategies, investors can minimize risk and benefit from the upside that markets offer without risking everything.
Knowing Yourself and Your Circle of Confidence
Investors should have a clear understanding of their investment strategies and their own abilities. It is important to assess one's knowledge and expertise in certain industries or types of stocks. This self-awareness helps in making informed investment decisions and potentially avoiding unnecessary risks.
Continuous Learning and Flexibility
Investors should prioritize continuous learning and remaining flexible in their approach. They should be open to new ideas, avoid stubbornness, and continually reassess their strategies. By being adaptable and open-minded, investors can better navigate changing market conditions and make informed decisions.
Importance of Not Getting Complacent and Evaluating Positions
It is crucial to not become complacent with your portfolio and continuously evaluate each position. This means viewing every position not based on its past performance, but based on its current risk and whether you would still want to hold it at its current price.
The Significance of Having a Systematic Approach
Having a suite of indicators or tools that inform your biases and align with your investing style is essential. This approach helps to avoid getting overwhelmed by noise and distractions, such as excessive research or market headlines. It is important to find the tools that work best for you and repeatedly implement them.
The Importance of Implementation and Methodology
Having a methodology that aligns with your investment style is crucial. It is not something that can be developed overnight, but rather over time through reading, research, and finding your place in the investing world. Keeping it simple and focusing on minimizing mistakes is key.
The Value of Investing in Yourself and Simplicity
Investing in yourself and your future production is the key to financial success. Prioritizing your human capital and simplifying your finances can lead to long-term growth and stability. Understanding that complexity is not necessary and choosing simpler options in investing and life can lead to a more fulfilling and successful journey.
Diversification and Price Confirmation
Diversifying one's investment portfolio by buying broadly diversified baskets, such as index funds, is essential for long-term success. It is important to have a core allocation of 80-90% in a long-term strategy, while setting aside 5-10% for speculative investments or opportunities with higher growth potential. When expecting a significant change in a security's price, it is crucial to wait for price confirmation before making investment decisions. Having an open mind to different possibilities and letting price confirm one's thesis can help avoid painful losses.
Time, Taxes, and Setting Financial Goals
To grow wealth over time, three key factors are important: time, taxes, and rate of return. Starting as soon as possible, it is recommended to take advantage of tax-compounding by maximizing contributions to retirement accounts such as 401(k) or IRAs. Allocating less than what is earned and saving the excess can provide cash for long-term investment. Setting financial goals in terms of target size, desired lifestyle, and length of time to achieve those goals, determines the appropriate level of risk and expected return for investment portfolios. Consistently saving and investing for the long term sets one up for financial success.
Trust Your Own Framework and Exercise Virtue
Investors should develop and trust their own analytical framework, considering factors such as accounting information, valuation metrics, and probabilities. Making informed decisions based on one's own analysis, regardless of market sentiment, can lead to successful outcomes. It is important to exercise patience, humility, and discipline in investment decisions. Trusting your gut instinct and sticking with a decision without being swayed by fear or external factors is crucial. Excellence in investing is the result of intentional effort, intelligent execution, and wise decision-making.
Avoiding Costly Mistakes and Balanced Investing
Investors should avoid costly mistakes and strive to learn from experience. Being humble and willing to change one's perspective is crucial. Embracing diversification and balance in investment portfolios is advisable. One should not rely solely on a single investment strategy or focus on one region, such as the US or China. Recognizing the co-opetition between the US and China and bet on both by diversifying across global growth drivers can provide a smoother ride and increase the chances of success.
Consider Marketing and Persuasion in Investment Decisions
In investment decisions, it is important to consider marketing and persuasion. Markets are driven by buyers and sellers who are persuading each other based on narratives and ideas. Understanding the marketing perspective helps to evaluate investment opportunities and ensure that they truly solve problems or provide value. Whether investing in broad markets or individual products or services, analyzing the marketing narrative is essential before engaging in any investment.
Closing Thoughts: Be Humble and Think in Probabilities
Keeping humility, being open to change, and thinking in probabilities are important lessons for average investors. Avoiding overconfidence and continuously challenging one's own beliefs can help make better investment decisions. Approaching investments with a probabilistic mindset and acknowledging that there is never a guarantee of success allows for a more realistic and well-informed approach to financial markets.
We have now conducted over 100 interviews on Excess Returns. At the end of all of them, we have asked the same closing question:
Based on your experience in markets and your research, if you could teach one lesson to the average investor, what would it be?
In this episode, we bring all of their episodes together into one episode and share the answers from all our guests, including Guy Spier, Rob Arnott, Michael Mauboussin, Steve Romick, Joel Tillinghast, Cem Karsan, Bob Elliott, Jerry Parker, Andy Constan and many more.
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