The markets are a little bit choppy if you haven’t noticed. The economy is carrying a bit of a shadowy forecast these days and money seems to be getting tighter and tighter. If you turn on the news, there is not much besides doom and gloom. Then there is you—the hard-working American that just wants to live the American dream, retire and stay successfully retired, and let the cares of the world roll off your back. Can it still be done in this crazy world in which we live?
In a chaotic and emotionally charged world, it’s imperative that you don’t let your emotions overrule your decisions. Fortunately, but unfortunately, you are a primitive being. Emotions are what have you kept you alive and they are part of who you are. At the same time, they can interfere with your decision-making and muddy the water. How many of your decisions are justified by the words…” I just feel that…?”
This is why there is an entire field of study behind what is called behavioral finance. We would like to think that we will always make rational and analytical decisions, but this simply isn’t true. You are emotionally tied to your family, money, experiences, etc. Your life is a culmination of your emotions and beliefs. And truth be told, some of these may have such a strong-hold on you that they are debilitating areas of your life without you even knowing it.
Do yourself a favor and look up behavioral finance and read about the different effects. You are not alone. News Flash: We are all primitive beings!
Now with that out of the way, what do you do next? Well, history can teach us a lot. It is said that history repeats itself. In a lot of ways, it does—some verbatim; some in like-kind. The truth behind that statement is that history can enlighten you. It can bring clarity and help you gain wisdom.
The good news is you don’t have to start from scratch. Learn from other people’s experiences. I want to share with you 10 pieces of wisdom that come from a lot of history. These authors are recognized time and again for their success, probably due to their ability to pick apart emotion from logic.
#10…An investment in knowledge pays the best interest. - Benjamin Franklin
We discount the simplicity of this statement, but it is so true. At KFS, we are committed to education. We educate ourselves and the families we work with. The more you know, the less emotion can take control.
#9…Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. - Paul Samuelson
Reddit and Robinhood—need I say more? If you are worried about what is happening in the markets today, this week, this month, or even this year; you probably need help assessing your plan. Hence, #8 on our list….
#8…The average long-term experience in investing is never surprising, but the short-term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk. - Charles Ellis
What are your current and future needs and goals? Your investments should be working to support these. Even if you are taking withdrawals from your investments today, a long-term plan should be in place to support this.
#7…The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. - Warren Buffet
You are your biggest risk to your investments. There is no discipline in being too greedy, too fearful, or both.
#6…How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. - Robert G. Allen
Even in a world of rising CD rates, safe money cannot keep up with inflation. This is a good way to be safe, but go broke safely.
#5…The individual investor should act consistently as an investor and not as a speculator. - Ben Graham
We often forget that the stock market is made of companies that we, as consumers, buy from every day. Nonetheless, investment vehicles are full of complexity. If you don’t understand what you are investing in, you aren’t an investor.
#4…It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. -Warren Buffet
Data and discipline work. Our Chief Investment Officer is always saying a monkey can throw darts during a bull market and most likely make money. The problem is that bull markets are followed by bear markets. You better know what you own.
#3…In investing, what is comfortable is rarely profitable. - Robert Arnott
Another Aaron Kennedy, CFA® saying is, “You deserve the return you get.” In other words, you can’t make money without taking risk. Taking risk doesn’t guarantee you will make money, but there may be even a greater risk in taking no risk.
#2…The four most dangerous words in investing are, ‘it’s different this time.’ - Sir John Templeton
Every recession is different, but they are all recessions. Every depression is different, but they are all depressions. The economic cycle is a cycle. The best thing you can do as an investor is to be logically prepared and keep your emotions out of it.
#1…We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. - Warren Buffet
Speaking of emotions…invest for them! There is a reason Warren Buffet is quoted three times in this article. He is a contrarian to investor behavior and disciplined.
Here it is…10 pieces of financial wisdom that stand the test of time. The ironic thing is that is what most of us desire for our investment portfolios—to stand the test of time. Will yours?