6 great investing lessons from the world’s best investors

It might sound like a cliché but investing is a lifelong journey.

Every investor will make mistakes along the way but hopefully the lessons learnt from those mistakes will make them a better investor over time.

Learning from your mistakes is important, but I believe learning from other people’s experience is equally as important.

And there is nobody better to learn about wealth creation and long-term investing from than people like Warren Buffett, Benjamin Graham, Peter Lynch, and other proven world class investors.

While most of the great investing lessons originate from the US, I think the principles can be applied just as well to the Australian sharemarket.

Here are six of my favourite investing lessons that I think every investor can benefit from:

1. “Successful investing professionals are disciplined and consistent and they think a great deal about what they do and how they do it.” Benjamin Graham

To be successful, investors must always undertake their own research and do the necessary analysis before making an investment. While it can be helpful to get ideas and tips from other people, this can never be a substitute for your own research and disciplined process.

2. “Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett

This is one of the most well known quotes amongst investors and I believe is one of the most relevant also. Emotions and sentiment drive the share market in the short term and investors must be prepared to take advantage of irrationality when it occurs.

  3. “Know what you own, and know why you own it.” – Peter Lynch &: “Never invest in a business you can’t understand” – Warren Buffet

If you don’t understand the business you are buying, then you probably should not be investing in it. Investors should be able to easily explain what the business sells or does and how it makes money. Without this understanding, it is nearly impossible to confidently value a company.

4. “How many millionaires do you know who have become wealthy by investing in savings accounts?” Robert G Allen

Savings accounts might be less volatile than equity markets but they don’t build wealth over the long term. Shares are still the best performing asset class over a long period of time and also the most interesting! At times the market can be frustrating and you might be tempted to ‘sell everything’ but history shows that it usually pays to remain patient and stay invested.

5. “The individual investor should act consistently as an investor and not as a speculator.” – Benjamin Graham

Speculating can be exciting and fun but it is rarely a path to long-term investment success. An investor will base their decisions on real life facts and figures and not on ‘blue sky’ potential.

6. “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business who’s earnings are virtually certain to be materially higher five, ten and twenty years from now” – Warren Buffett

This last lesson is pretty straightforward and the one I believe perfectly sums up the concept of long-term investing. Three stocks that I believe fit this description include:

  • Magellan Financial Group Ltd (ASX: MFG) – A well run international funds management business with an attractive long term outlook.
  • REA Group Limited (ASX: REA) – The leading residential property listing provider in Australia with an enviable market position and growing international operations.
  • CSL Limited (ASX: CSL) – Biotech companies can be risky but CSL’s diversified portfolio of products reduces this risk. The company is likely to generate significantly higher earnings over the next decade.

Foolish takeaway

By following these simple lessons, the investing journey for most investors will certainly be more profitable and enjoyable. While they are not guaranteed to build your long-term wealth, they will definitely place you on the right path to success.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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