The unfortunate truth about investing

The gulf between a great company and a great investment can be extraordinary

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Sorry, but…

1. Saying “I’ll be greedy when others are fearful” is much easier than actually doing it.

2. The gulf between a great company and a great investment can be extraordinary.

3. Markets go through at least one big pullback every year, and one massive one every decade. Get used to it. It’s just what they do.

4. As Erik Falkenstein says: “In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”

5. Time-saving tip: Instead of trading penny stocks, just light your money on fire. Same for leveraged ETFs.

6. Not a single person in the world knows what the market will do in the short run. End of story.

7. The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn’t — his are much bigger.

8. You don’t understand a big bank’s balance sheet. The people running the place and their accountants don’t, either.

9. There will be seven to 10 recessions over the next 50 years. Don’t act surprised when they come.

10. Most of what is taught about investing in school is theoretical nonsense. There are very few rich professors.

11. The market doesn’t care how much you paid for a stock. Or your house. Or what you think is a “fair” price.

12. The majority of market news is not only useless, but also harmful to your financial health.

13. Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don’t even try.

14. The decline of trading costs is one of the worst things to happen to investors, as it made frequent trading possible. High transaction costs used to cause people to think hard before they acted.

15. Most IPOs will burn you. People with more information than you have want to sell. Think about that.

16. When someone mentions charts, moving averages, head-and-shoulders patterns, or resistance levels, walk away. Or run.

17. The book Where Are the Customers’ Yachts? was written in 1940, and most still haven’t figured out that financial advisors don’t have their best interest at heart.

18. The low-cost index fund is one of the most useful financial inventions in history. Boring but beautiful.

19. The best investors in the world have more of an edge in psychology than in finance.

20. What markets do day to day is overwhelmingly driven by random chance. Ascribing explanations to short-term moves is like trying to explain lottery numbers.

21. For most, finding ways to save more money is more important than finding great investments.

22. If you have credit card debt and are thinking about investing in anything, stop. You will never beat 20% annual interest.

23. A large portion of share buybacks are just offsetting shares issued to management as compensation. Managers still tout the buybacks as “returning money to shareholders.”

24. The odds that at least one well-known company is insolvent and hiding behind fraudulent accounting are high.

25. Twenty years from now the ASX 200 will look nothing like it does today. Companies die and new ones emerge.

26. The government has much less influence over the economy than people think.

27. However much money you think you’ll need for retirement, double it. Now you’re closer to reality.

28. The next recession is never like the last one.

29. Remember what Mark Twain says about truth: “A lie can travel halfway around the world while truth is putting on its shoes.”

30. Investments that offer little upside and big downside outnumber those with the opposite characteristics at least 10-to-1.

Foolish takeaway

The best investors are cleverer than they think – the worst think they are cleverer than they are. The same applies to their temperaments and behaviour.

Investing Foolishly (with a capital F!) is all about getting rich slowly. As the saying goes, there’s no shortcut to any place worth going. Trying to take shortcuts is much more likely to end up in pain. And no, you’re very unlikely to be the exception to that rule.

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The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Morgan Housel, originally appeared on fool.com

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