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9 Lessons From the World's Greatest Investors

 

Article Last Updated: 28 January 2021

When the world’s best investors offer their investment tips, it pays to listen. While leading money managers often approach stock picking and portfolio construction differently, they tend to share similar views around the fundamentals of good investing. If you want to build a solid foundation for your own investment journey, here are nine investment lessons from some of the greatest investors:

1. Peter Lynch: Mistakes are inevitable

“In the business of investing, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” Peter Lynch

Every investor would benefit from the ability to accept mistakes. Recognising when you’ve misjudged a stock, the company behind it, or the market itself allows you to respond with the right course of action and move on. Being wrong gives you a chance to learn.

2. Warren Buffett: Invest in what you know

“Never invest in a business you cannot understand.” Warren Buffett

How can you evaluate a business you don’t understand or know nothing about? If you're familiar with what it does, how it makes money, and the industry it’s in, then you’ll be in a far better position to figure out whether it’s a worthwhile investment.

3. Peter Lynch: Control emotions

“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.” Peter Lynch

While share market returns tend to trend upwards over the time, share prices fluctuate — sometimes wildly — over the short term. Controlling emotions like fear and greed is crucial to stick with your long-term investment strategy.

4. Prince Alwaleed Bin Talal: Invest long-term

“We're getting hurt, but I'm a long-term investor.” Prince Alwaleed Bin Talal

Linked to the previous lesson, being in it for the long haul is another key to success. Owner of international luxury hotels and a significant investor in Apple, Twitter, Snap, and Citigroup, Prince Alwaleed Bin Talal makes it clear that you can overcome short-term pain by taking a long-term view. It's a reminder that investment capital should be money you can leave invested for an extended period.

5. John Templeton: Diversify

“The only investors who shouldn't diversify are those who are right 100% of the time.” John Templeton

This is a popular portfolio strategy. Diversifying your investments means spreading them across various industries and potentially different asset classes. By including assets that thrive in different economic and financial market conditions, you essentially limit your risk exposure to any specific stock, industry, or asset category. 

6. Ray Dalio: Don’t bother with cash

“Cash is trash.” Ray Dalio

Many of the world’s best investors share this sentiment, but Ray Dalio’s message is more blunt than most. Although cash investments such as savings accounts and term deposits are highly secure, their returns often struggle to keep up with inflation. Such low returns expose you the risk of not meeting your long-term financial goals.

7. Benjamin Graham: Have a plan

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that are likely to get you where you want to go.” Benjamin Graham

This great investment tip reminds us of what really matters — setting out our money objectives in a financial plan then using it to measure our progress and guide our actions.

8. Carlos Slim: Put things in perspective

“With good perspective of history we can have a better understanding of the past and present, and thus a clear vision of the future.” Carlos Slim

The investment lesson here is about understanding what’s happened before — market rallies, downturns, and recoveries — so you can cope with emotional reactions that accompany big market swings. It prompts us to look at past performance when predicting future growth.  

9. Michael Steinhardt: Keep up with change

“The markets are always changing, and the successful trader needs to adapt to these changes.” Michael Steinhardt

Implicit in Michael Steinhardt’s insight is the need to keep up with market and economic news including things like currency and interest rate movements, industry specific events, and wider economic indicators.

Final thoughts

These investment lessons will help you to approach investing with the right mindset, develop resilience to deal with setbacks, and establish a blueprint for evaluating investment opportunities. By learning from the greatest investors you’ll be more effective in making sound investment decisions and ultimately become a better investor.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Twitter. The Motley Fool Australia has recommended Apple. 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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