My nine most important lessons from investing over the past 35 years are that: there is always a cycle; the crowd gets it wrong at extremes; what you pay for an investment matters a lot; getting markets right is not as easy as you think; investment markets don’t learn; compound interest applied to investments is like magic; it pays to be optimistic; keep it simple; and you need to know yourself to succeed at investing.
# 1 There is always a cycle
# 2 The crowd gets it wrong at extremes
# 3 What you pay for an investment matters a lot
# 4 Getting markets right is not as easy as you think
# 5 Investment markets don’t learn
# 6 Compound interest is like magic
# 7 It pays to be optimistic
# 8 Keep it simple stupid
# 9 You need to know yourself to succeed at investing
So what does all this mean for investors?
1. Make the most of the power of compound interest. This is one of the best ways to build wealth and this means making sure you have the right asset mix.
2. Don’t get thrown off by the cycle. The trouble is that cycles can throw investors out of a well thought out investment strategy. But they also create opportunities.
3. Invest for the long term. Given the difficulty in getting market and stock moves right in the short-term, for most it’s best to get a long-term plan that suits your level of wealth, age, tolerance of volatility, etc, and stick to it.
4. Diversify. Don’t put all your eggs in one basket. But also, don’t over diversify as this will just complicate for no benefit.
5. Turn down the noise. After having worked out a strategy thats right for you, it’s important to turn down the noise on the information flow and prognosticating babble now surrounding investment markets and stay focussed. In the digital world we now live in this is getting harder.
6. Buy low, sell high. The cheaper you buy an asset, the higher its prospective return will likely be and vice versa.
7. Beware the crowd at extremes. Don’t get sucked into the euphoria or doom and gloom around an asset.
8. Focus on investments that you understand and that offer sustainable cash flow. If it looks dodgy, hard to understand or has to be based on odd valuation measures or lots of debt to stack up then it’s best to stay away.
9. Seek advice. Given the psychological traps we are all susceptible too and the fact that investing is not easy, a good approach is to seek advice.