Here are ten quotes that have shaped the way I view investing. Some were coined by famous investors, but most were not…
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
- Charles Darwin
Darwin may have been referring to the animal kingdom, but natural selection also drives financial markets. One of the easiest ways to lose money over time is to refuse to adapt with markets.
“Rules are for the obedience of fools and the guidance of wise men.”
- Douglas Bader
Markets do not operate on Newtonian physics. If they did, there would be no bidding wars for homes or panic selling of stocks, and investment strategies that worked 50 years ago would still work today. There are no rules, but adhering to a few guidelines can pay off over the long run (try not to overpay, ignore the hype, etc.).
“If you can’t explain it to a six-year-old, you don’t understand it yourself.”
- Albert Einstein
No matter how complicated or intimidating the world of finance and investing may seem, nearly every concept can be explained. Therefore, trust nobody who tries to confuse you with financial jargon. Best case is they are showing off, but more likely than not, they have no idea what they are talking about.
“The secret of his success is that he never went to business school. Imagine all the lessons he never had to unlearn.”
- Peter Lynch
Picking my favorite Peter Lynch quote feels a lot like force ranking my kids, but this one is just too good. Business and investing are disciplines that couldn’t be more different than formulaic ones like medicine or procedural ones like the law. As the saying goes, there’s no substitute for hard work, and burying your head in textbooks is often as dangerous as burying your head in sand.
“Wall Street indexes predicted nine out of the last five recessions.”
- Paul Samuelson
This famed economist could not have summed up the predictive nature of the stock market any better. Sure, the stock market has fallen prior to every recession going back to 1900, but it has been wrong far more times than right.
“How easy it is to make people believe a lie, and how hard it is to undo that work again.”
- Mark Twain
Here’s an interesting statistic from a recent study conducted at Harvard Medical School. If both parents are right-handed, then there’s an 85% chance that their child will be left-handed. Crazy right?
What’s crazy is that I made it all up. I know nothing about genetics, and I try to avoid reading anything that comes out of Harvard, but I’m pretty sure there’s a good chance that you believed me (even for a split second). That’s because statistics have powerful psychological effects, and we often believe what we read without taking the time to verify sources.
Making matters worse, when confronted with the realization that we may be wrong, our natural instinct is to dig our heels into the ground. Rather than incorporate the new information into our analysis, we either don’t want to do the extra work or worry that we may end up looking like a fool if we were to admit we were wrong. So, we simply dismiss this new information.
Cognitive biases are far more dangerous to our financial future than any recession.
“All of human unhappiness comes from a single thing - not knowing how to remain at rest in a room.”
- Blaise Pascal
The last 18 months have taught us that boredom can lead to destructive behavior. The stock market is perfect to scratch this itch because it’s fast-paced, there are dedicated news channels that follow its every move, and best of all, it’s easy to play. Thanks to companies like Robinhood, all it takes is a cell phone and a bank account.
There’s also a dangerous misconception that good money management equates to lots of trading. As in, the more my money manager trades, the harder (s)he is working for me. On the flip side, less trading means (s)he could be asleep at the wheel, but nothing could be further from the truth. As the legendary investor Jim Rogers once said, most successful investors do nothing most of the time, and I can’t agree more.
“I never invest at the bottom, and I always sell too soon.”
- Nathan Rothschild
When asked how he had made his fortune, Nathan Rothschild, one of history’s most famous investors, replied with this paradoxical quote. It’s human nature to think that timing markets is critical to success, but the reality is that one of the worst possible outcomes for any investor is to sell at the top or buy at the bottom. Because doing so may make you think that luck wasn’t involved, and even worse, convince you that you can do it again.
“Something that everyone knows isn’t worth knowing.”
- Bernard Baruch
The next time you read the Wall Street Journal over morning coffee or thumb through a three-month-old copy of Fortune Magazine while waiting to get your hair cut, just remember that this information is available to everyone and already priced into whatever stock that is being discussed.
Any information “edge” versus the competition must truly be something that other investors cannot access or have missed (not easy to do in today’s regulatory environment).
“For 240 years it's been a terrible mistake to bet against America, and now is no time to start.”
- Warren Buffett
Despite the negativity portrayed in the media, there’s nothing quite like America. Quantum computing, clean energy, driverless cars, artificial intelligence, blockchain, breakthrough cancer drugs, individualized therapies, big data, Cool Ranch Doritos, mobile payments, genomics, cybersecurity, Internet of Things (IoT), vertical farming, space exploration, flying taxis, neuromorphic chips, and so much more world-changing innovation is all happening right here. There simply isn’t a country on this planet that fosters entrepreneurship like we do here, and that’s a really big deal for U.S. based investors.
Disclosures
This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. Richard W. Paul & Associates does not provide tax, legal, investment, or accounting advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.