What I've learned about investing

Great post here by a Motley Fool Commentator

Lessons Learned

I believe the enemy in the mirror is a big factor in the mistakes that we make

I've written over 3,000 columns. I've learned a tremendous amount in writing about investing and the economy.

Here are a few of the big lessons.

I've learned that changing your mind is one of the most difficult things we do. It is far easier to fool yourself into believing a falsehood than admit a mistake.
I've learned that people are terrible at predicting their own emotions. You will be more fearful when the market is crashing and more greedy when it is surging than you think.

I've learned that strong political beliefs in either direction limit your ability to make rational decisions more than almost anything else.

I've learned that short-term thinking is at the root of most of our problems, whether it's in business, politics, investing, or work.

I've learned that debt can cause more social problems than some drugs, yet drugs are illegal and debt is tax deductible.

I've learned that finance is actually very simple, but it's made to look complicated to justify fees.

I've learned that self-interest is the most powerful force in the world. People in unethical, predatory, and nonsense jobs will do mental gymnastics to convince themselves they're doing the right thing. Those who criticise the behaviour of "greedy Wall Street bankers" underestimate their tendency to do the same thing if offered an eight-figure salary.

I've learned that people are twice as biased as they think they are, which is precisely why biases are dangerous.

I've learned that unsustainable things can last years, even decades, longer than people think.

I've learned that those who think "it's different this time" are the four most dangerous words are wrong. It is always different this time, as no two recessions, recoveries, or market cycles are alike. What's dangerous is assuming the future will perfectly resemble the past.

I've learned that no one cares how accurate pundits' forecasts are. Those who listen to pundits are most interested in having their own views confirmed. Accuracy is an afterthought.

I've learned that there's a strong correlation between knowledge and humility. People who spend 10 minutes on Google studying monetary policy think they have it all figured out, while people with PhDs and decades of experience throw up their hands in frustration. The more you study economics, the more you realise how little we know about it.

I've learned that what looks like tomorrow's biggest threat almost never is. Most of what people worried about over the last five years - inflation, rising interest rates, a double-dip recession, stagnant markets, Greece leaving the euro, a government default -never occurred. The biggest actual risk for most of us was something few talked about: excessive pessimism.
I've learned that data can do more harm than good. There is so much data available today that you can convincingly prove almost anything by cherry-picking with industrial strength. This breeds confirmation bias, as people start with an answer then find data to back it up.

I've learned that a willingness to wait longer than other people is your biggest natural edge. If you can think about the next five years while everyone else is fixated on the next five months, you have an advantage that makes high-frequency trading, insider tips, and corporate loopholes look like a joke.

I've learned that we can't tell the difference between luck and skill. Out of millions of investors, a few will be phenomenally successful due to luck alone, yet no one is willing to admit they are one of the lucky ones.

I've learned that there's no such thing as a normal market or a normal economy. Some people spend their lives "waiting for things to get back to normal" without realising that stocks and the economy are always in some state of craziness.

I've learned that when it comes to earning high investment returns, market volatility is like an entrance fee at an amusement park. But few investors want to pay the market's entrance fee. They'd rather sneak in the back door, hop the fence, and outsmart security -all of which is stressful and likely to fail. At both the amusement park and in investing, they'd have a better experience if they just paid the damn entrance fee.

I've learned that people's expectations grow faster than their wealth. The country is richer than it's ever been. I don't think it's as happy as it's ever been.

I've learned that how you reacted to past bubbles is a good indication of how you'll act to future ones. The same people buying dot.com stocks in 1999 were buying Miami condos in 2006 and gold in 2011.

I've learned that "do nothing" is the best advice for almost everyone almost all the time.

Link

Not sure about "Do Nothing" :confused:

I'd say start with a plan or risk getting lost, though be aware you may stray off course along the way, there is no perfect path "many roads lead to Rome". ;)
 
. "The country is richer than it's ever been. I don't think it's as happy as it's ever been."
Very true! I had a Somalian taxi driver who said his mother lived in Somalia with no running water and electricity, the happiest women he has ever known yet he said in Australia we have everything yet we are not happy
 
Hi Samee

Remind's me of the Mexican Fisherman Parable

An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, ?only a little while. The American then asked why didn?t he stay out longer and catch more fish? The Mexican said he had enough to support his family?s immediate needs. The American then asked, ?but what do you do with the rest of your time??

The Mexican fisherman said, ?I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.? The American scoffed, ?I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.?

The Mexican fisherman asked, ?But, how long will this all take??

To which the American replied, ?15 ? 20 years.?

?But what then?? Asked the Mexican.

The American laughed and said, ?That?s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!?

?Millions ? then what??

The American said, ?Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.?

The end game for me is about happiness, a fulfilling life and personal along with financial freedom
 
Mexican Fisherman Parable

so true!

I've learned that "do nothing" is the best advice for almost everyone almost all the time.
Sounds divine. I'm craving 'doing nothing' right now. :)

I've learned that strong political beliefs in either direction limit your ability to make rational decisions more than almost anything else.
This is interesting. Constantly making yourself believe things is mentally exhausting and takes up a lot of space. Guess we all do it to some extent or another. As I get older, I see more and more that this is true.
Problem is, some people are lost without their strong beliefs and just don't know what to do without them.

This is the best for me right now:
I've learned that a willingness to wait longer than other people is your biggest natural edge. If you can think about the next five years while everyone else is fixated on the next five months, you have an advantage that makes high-frequency trading, insider tips, and corporate loopholes look like a joke.
...especially as I missed the prime opportunity to buy because I'm so over-leveraged with my last purchase.
Basically, am forced to think within 5-7 year time-frame. So can claim wisdom due to cicumstances that my lack of forsight brought about!
:)
 
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