Shane Oliver is Head of Investment Strategy and Chief Economist at AMP Limited (ASX: AMP). There may be a bit of negativity surrounding AMP right now, but I've read a lot of useful and insightful things from Mr Oliver over the years.
He has shared on Livewire nine of his key insights to successful investing and how to ignore Mr Market at the right times:
Make the most of the power of compound interest
There's a reason Albert Einstein once supposedly called compound the eighth wonder of the world and the most powerful force in the universe.
Shares have been compounding at a long-term rate of around 10%. Decades of growth at this rate creates wonderful wealth if you're invested in shares.
Be aware of the cycle
Most investment classes go through cyclical phases, both good and bad. There are some shorter cycles, like resource cycles. There are also longer ones like the global economy and the bond market. Eventually all cycles end and start again. This can cause problems and opportunities.
Invest for the long-term
Trying to invest in the short-term usually ends up creating poor returns. All you need to do in investing is avoid bad mistakes. A comparison would be tennis – most of the time simply not missing your shots will lead to victory.
Investing for the long-term gives your investment the time it needs to grow and compound.
Diversify
Don't put your eggs in one basket, but don't necessarily try to make things too complicated either for no benefit.
Only holding a couple of shares such as Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA) and a term deposit is not diversified and leaves you highly exposed to a problem if one of your shares hits a rough patch.
Turn down the noise
Bad news sells. Newspapers often like to tout headlines like: "Share market loses $20 billion in one day!". Running a headline every day of "Shares deliver long-term growth for patient people" won't sell many subscriptions.
Don't let yourself get caught up in the 24-hour news cycle. You don't need to worry about your portfolio every day if you're invested in the right shares for the long-term.
Buy low, sell high
It may seem obvious but many people end up buying at the top of the market when the share market is excited and sell when fear is everywhere. If you buy when the market is down and sell when it's high you'll be much better off!
Or simply, buy at good value and hold for the long-term.
Beware the crowd at extremes
If you invest the same as everyone else then you're going to get average returns, at best. Sometimes what everyone is doing is not a good thing. Everyone loved Bitcoin eight months ago and now they don't. Unsurprisingly the price has fallen by almost two thirds since then.
No matter what everyone else is doing you must remain focused on the value and future growth of your potential investments.
Focus on investments offering sustainable cash flow
Lots of investors are currently valuing investments on a potential future. Some of those ideas do turn into major businesses such as Facebook, Google (now Alphabet) and Amazon. However, many of them never turn into anything.
Assets that are generating real profits are the ones to be focusing on.
Seek advice
It's okay to not know everything about investing. There's also the tendency to react negatively to bad news. A good approach could be to use an investment service or coach to help you through, like how we look to doctors or plumbers to assist with our needs.
Foolish takeaway
There are a lot of good tips in there. Investing in profitable businesses with a path to sustainable future growth and holding for the long-term seems like the easiest and simplest way to wealth to me.
