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25 Thoughts about investing and the economy

1. According to a Wells Fargo survey, only 27% of young people say “time is on my side for my savings/investments to grow.” Please, please make financial education mandatory in school.

2. “Guy Who Has Been Predicting Market Crash Since Whitlam Predicts Another Market Crash” is not front-page news.

3. Asked about the economy’s performance after the financial crisis, Charlie Munger said, “If you’re not confused, I don’t think you understand.” A strong dose of humility is vital when assessing the economy.

4. Since the GFC began, Tumblr, Instagram, Groupon, Zynga and Uber were all dreamed up, founded, and sold or valued at more than $1 billion. A weak economy doesn’t kill opportunity. It probably increases it.

5. Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports and industry trade journals. “Read 500 pages like this every day,” he said. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.” That last sentence is the most important.

6. As Josh Brown points out, there are no perma-bears on the Forbes 400 list of richest Americans. Ditto the BRW rich list. Optimism wins in the long run.

7. Most economists could do better if they acted more like historians and psychologists and less like meteorologists.

8. I thought shares returning to 5-year highs would change the tenor about the supposed death of buy-and-hold investing. It hasn’t. More and more, I’m realising the only people who think buy-and-hold is dead are (1) businesses that earn income on transactions, and (2) people frustrated in their inability to follow it.

9. Investors have notoriously short memories. Interest rates have been falling for 30 years. Put those two together, and the prospect of rising interest rates is really daunting. Even some of the most grizzled, seasoned bond managers haven’t experienced a sustained rise in interest rates.

10. Apple increased more than 9,000% from 2002 to 2012, but declined on 48% of all trading days. It is never a straight path up.

11. In an interview earlier this year I asked Nobel Prize-winning psychologist Daniel Kahneman how to make fewer mistakes in life. “You should talk to people who disagree with you and you should talk to people who are not in the same emotional situation you are,” he said. Try this before making your next investment decision.

12. Labelling yourself a “Keynesian” or an “Austrian” economist purposefully shuts your mind off to open and flexible thinking. It turns trying to figure out how the world works into a sporting event of “my team versus yours” where the goal is to beat and humiliate your opponent. Total waste of time.

13. When most people say they want to be a millionaire, what they really mean is “I want to spend a million dollars,” which is literally the opposite of being a millionaire. A lot of wealthy people don’t have nice stuff, which is, in fact, why they’re wealthy.

14. Investor Nick Murray once said, “Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” I would nominate this in the top 10 most important investing maxims ever spoken.

15. Harvard professor and former Treasury Secretary Larry Summers says that the premise of “virtually everything I taught” in economics was called into question by the financial crisis. This is why they call it a soft science.

16. The business model of the majority of financial services companies relies on exploiting the fears, emotions, and lack of intelligence of customers. The worst part is that the majority of customers will never realise this.

17. Investors anchor to the idea that a fair price for a stock must be more than they paid for it. It’s one of the most common, and dangerous, biases that exists. “People do not get what they want or what they expect from the markets; they get what they deserve,” writes Bill Bonner.

18. Companies that focus on boosting their share price will eventually lose their customers (Lehman Brothers, Enron). Companies that focus on their customers will eventually boost their stock price (Amazon, Facebook). This is an oversimplification but helps explain the difference between short- and long-term management styles.

19. Ben Bernanke and Glenn Stevens understand monetary policy better than you do. Please remember this when criticising them.

20. If U.S. housing construction returns to its historic norm, private fixed investment returns to its historic norm, and state and local austerity comes to an end, boom, economic growth in that country could be back to a normal, strong pace. And good news: All three of those are in the process of occurring. Don’t underestimate the flow-on benefits for Australia.

21. You can control your investing decisions, your own education, who you choose to listen to, what you choose to read, what evidence you choose to pay attention to, and how you respond to certain events. You cannot control what the RBA does, laws parliament makes, the next unemployment report, or whether a company will beat earnings estimates. Focus on the former; try to ignore the latter.

22. “Do nothing” are the two most powerful and underused words in investing. The urge to act has transferred an inconceivable amount of wealth from investors to brokers.

23. It’s easy to mistake luck for success, or at least the role luck plays in success. As John D. Rockefeller once said, the key to success is: (1) get to work early, (2) stay late, (3) strike oil. This needs to be kept in mind more often when learning from wealthy people. Especially investors.

24. Investor Dean Williams once noted, “Expertise is great, but it has a bad side effect: It tends to create the inability to accept new ideas.” Some of the world’s best investors have no formal backgrounds in finance, which helps them tremendously.

25. Billionaire investor Ray Dalio once said, “The more you think you know, the more closed-minded you’ll be.” Repeat this line to yourself the next time you’re certain of something.

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

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