Sixteen Investing Aphorisms

16 Rules for Investors to Live By

The List (article details):

  1. All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks.
  2. Most bubbles begin with a rational idea that gets taken to an irrational extreme
  3. “I don’t know” are three of the most underused words in investing.
  4. Short-term thinking is at the root of most investing problems
  5. Investing is overwhelmingly a game of psychology
  6. Things change quickly—and more drastically than many think.
  7. Three of the most important variables to consider are the valuations of stocks when you buy them, the length of time you can stay invested, and the fees you pay to brokers and money managers.
  8. There are no points awarded for difficulty
  9. A couple of times per decade, investors forget that recessions happen a couple of times per decade.
  10. Don’t check your brokerage account once a day and your blood pressure only once a year.
  11. You should pay the most attention to the investor who talks about his or her mistakes.
  12. Change your mind when the facts change
  13. Read past stock-market predictions, and you will take current predictions less seriously
  14. There is no such thing as a normal economy, or a normal stock market.
  15. It can be difficult to tell the difference between luck and skill in investing.
  16. You are only diversified if some of your investments are performing worse than others.
Comments: Here's my favorite (# 6):
Fourteen years ago, Enron was on Fortune magazine’s list of the world’s most-admired companies, Apple was a struggling niche company, Greece’s economy was booming, and the Congressional Budget Office predicted the federal government would be effectively debt-free by 2009. There is a tendency to extrapolate the recent past, but 10 years from now the business world will look absolutely nothing like it does today.

Comment: I'll add # 17: Don't forget "Mr Market" (Image above)

Then he turns to his usual speech about investing in stocks, giving a shout-out to Ben Graham’s idea of Mr. Market, which he says investors should think of as their partner. The beauty of having Mr. Market as a partner, he says, is that sometimes Mr. Market behaves like “a psychotic drunk.”

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