Editor’s note: This article was first published in January 2013; its comment on Spain’s taxation of short-term share gains refers to the rule then in force, which later changed, and the view that blue chips were the general recommendation reflects that time.
George Soros: good investing is usually boring
“If you find stock market investing fun, if you are enjoying yourself while you invest, you are probably not making money, because good investing tends to be boring.”
95% of traders enjoy trading. It is estimated that 95% of traders lose money, while the machines of the big firms that use automated systems collect the profits those traders leave behind through their losses. For Soros, good investing is not the constant thrill of high volatility, but those quiet stocks that move slowly in the direction of your investment. Still, Mr Soros ought to admit that he must have had a whale of a time with that famous speculative bet that practically bankrupted the Bank of England and earned him 1,000 million in profit.
Jack Bogle: losses are a fact of market life
“If a 20% loss in the stock market could cost you sleep, affect your health or your image, perhaps stock market investing isn’t for you.”
Even the best investors have had their big fiascos in the stock market. At any given moment it could happen: 20%, 50% or the whole investment.
The risk is there, and at some point it can materialise in any listed company, even the one we least expect. Once you are able to accept that risk, however unlikely it may be, you are ready to invest.
Bob Farrell: don’t follow the herd
“The public usually buys more at the top of a stock than at the bottom. That is why, when all the experts agree in their recommendations and forecasts, something is going to happen, and it won’t be what we expect.”
John Templeton: don’t forget about taxes
“For every long-term investor there should be just one goal: the highest total real return after tax.”
We sometimes forget that taxes have to be deducted from our gains. With the new taxation of shares in Spain, it may be better to hold part of the portfolio for more than 12 months, since at 10 months we may have to pay a higher percentage in tax. A bad move by the government, but one more obstacle we have to dodge.
Barton Biggs: no analysis or equation always works
“Investments based on quantitative terms, chart analysis and asset-allocation equations invariably fail, because they are designed to capture what a stock did in the last cycle, while the next cycle remains a riddle wrapped in an enigma.”
This is his particular way of telling us that technical analysis fails. Even if it can be shown to work in the short term, if your investment is long term, technical analysis is of absolutely no use.
Thomas Rowe Price: know who runs the company you invest in, and why
“All companies are created by people. Companies are the result of individuals. They reflect the personality and business philosophy of their founders and of those who have managed their affairs throughout their existence. If you want to understand any business, it is important to know the background of the people who started it and ran it in the past, as well as the hopes and ambitions of those who are planning its future.”
Peter Lynch: do your homework before investing
“Investing without researching is like playing poker without ever looking at your cards.”
Before buying shares in a company for the long term, we should know the company’s track record, how its results have evolved, its advantages in the market, its problems, its possible plans for the future, its manager, the difficulties of the market today and in the foreseeable future, and so on. EVERYTHING.
John Neff: do what is smart, not what is popular
“It isn’t always easy to do what is unpopular, but that is where you make your money: buying stocks that look bad to less careful investors and holding on to them until their real value is recognised.”
We have talked about this on a few occasions. Right now, all the recommendations are for many of the blue chips, but nobody remembers the penny stocks that, by the time people start recommending them, will already have risen 200%. If you believe in a company and its prospects, buy, and buy again, even if nobody recommends it, because once it has risen 500%, believe me, they will recommend it.
And a bonus quote: “What the wise man does at the beginning, the fool does at the end.” Someone said it at some point, and it applies to investing as much as to business.
Further reading
- The best quotes from the best investor: Warren Buffett
- The best investors in history and their returns
- What is a reasonable average annual return for a stock market investor?
- What does being rich really mean?
Featured image: BillCramer, CC BY-SA 4.0, via Wikimedia Commons.
