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3 of my favourite investing lessons

There is always more to learn with the share market and investing. No-one is perfect and even then, a perfect system won’t necessarily deliver the best results.

Over the years I’ve seen dozens of excellent little tips, lessons or mindsets that some of the world’s top investors have imparted. Often for free, for some reason.

Here are three of my favourite:

The market doesn’t care what price you paid

You are the only person who knows how much you paid for your shares. The market doesn’t care if you paid $10 or $15 for the share – other investors aren’t going to pump up the price just because you bought it at a particular time. You can’t expect a share to suddenly increase at the time you bought it.

There’s every chance that the share price could go lower than your purchase price, maybe for a long time. You have to be confident in your long-term thesis and then be patient for it to play out.

People who bought Xero Limited (ASX: XRO) shares in 2014 are only just seeing a similar price now.

Stay within your circle of competence

A circle of competence is simply investing in shares you understand. How are you supposed to know if the share is a good opportunity or not if you don’t know what it does or you don’t understand the industry it operates in?

If you can’t evaluate a share, how can you say if the current price is a buy or not? If the company makes a positive (or negative) announcement, how can you decide if the shares are now worth more? If a competitor comes out with a new product, will you know if it’s an issue or not?

Staying within your circle competence should hopefully mean less chance of a ‘blow up’ and more chance of solid returns.

It’s not about who’s the smartest investor

Every investor on the planet is trying to make money. For every transaction there’s a buyer and a seller. Investing is definitely not about who has the highest IQ, if that was the case then all of the best investors would be maths geniuses.

Sure, being able to dive into a company’s financials will help you look at useful statistics like return on equity, return on capital employed, debt ratios and so on. But, temperament and patience play an even bigger part.

Not panicking and giving compounding the time it needs to work is the best way to generate long-term returns.

Foolish takeaway

Keeping these three things in mind should hopefully mean you’re able to generate long-term returns.

Sticking to my lessons, I think these top stocks will provide market-beating results.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. 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 Scott Phillips.

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