Investing is the act of putting money into something with the expectation of getting a return. For beginners, this can be a daunting task. There are so many different types of investments, and it can be hard to know where to start. Four tips are to start by learning the basics, setting realistic goals, being patient and not to panic.
In this discussion, I focus on 10 popular investment quotes that are very useful, particularly for novice traders, though experienced traders will likely find the advice useful as well.
Warren Buffett (Trades, Portfolio)
Warren Buffett (Trades, Portfolio) once said, "The best investment you can make is in yourself." He emphasized the significance of self-improvement and continuous learning. Investing in your education, skills and personal development can yield high returns in the form of increased earnings potential and improved decision-making abilities. Being a financial analyst focusing on the fundamental analysis, I have found technical analysis to be very useful as short-term and even long-term trading is often driven by factors such as support and resistance, momentu, and oversold or overbought conditions that are the result of pure technical analysis. Investing should be a never-ending learning process as each day you can learn something new.
He is also known for saying, "Be fearful when others are greedy and greedy when others are fearful." This quote suggests successful investors should adopt a contrarian approach. When the market is overly optimistic and everyone is buying, it might be time to be cautious. Conversely, when there is fear and pessimism, it could be an opportunity to invest at potentially lower prices. The stock market crash during the pandemic proves this point as back in 2020, between Feb. 12 and March 23, the Dow Jones index lost nearly 37% of its value. When most people, including myself, were thinking lower prices would follow, a sharp rebound occurred. Smart money was buying stocks at a steep discount when most investors were panick-selling. A great lesson to remember.
The Oracle of Omaha also said, "The stock market is designed to transfer money from the active to the patient." This quote highlights the advantage of long-term investing. Patient, buy-and-hold investors often outperform those who engage in frequent trading and trying to time the market. Day trading is also very risky and not suitable for every investor.
He once cautioned, "Risk comes from not knowing what you're doing." Understanding the investments you make is crucial. Ignorance about the assets you hold can lead to taking on unnecessary risks, potentially resulting in losses. Do you remember the so- called meme stocks? They are still around, but had glorious days amid the pandemic. Their fundamentals were very poor, yet they witnessed extreme volatility and either made substantial quick profits for some traders or lost tons of money for others. Chasing stock prices higher knowing that a bubble is already formed and can burst at any time has too much risk and very poor odds of success.
Philip Fisher
The legendary Phil Fisher once said, "The stock market is filled with individuals who know the price of everything, but the value of nothing." This quote emphasizes the importance of distinguishing between the price and value of an investment. Price reflects what you pay for a stock, while value refers to its intrinsic worth. Successful investors focus on the underlying value of an asset rather than short-term price fluctuations. A distinction between a great company and a great stock should always be made. Always consider the value of any stock and if there is still enough margin of safety between the stock price and its intrinsic value. Otherwise, search for opportunities elsewhere.
Robert Arnott
“In investing, what is comfortable is rarely profitable,” Robert Arnott said. Achieving significant investment returns often involves taking calculated risks and stepping outside one’s comfort zone. Playing it safe and sticking to the familiar might not lead to substantial gains. The U.S. stock market in 2023 has been very strong and resilient to high inflation. Investing in equities in an environment of rising interest rates by the Federal Reserve has, in theory, better chances of failure. History so far has proved otherwise.
George Soros (Trades, Portfolio)
Famed invsetor George Soros (Trades, Portfolio) said, "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." Successful investing is not about always being right, but about managing risk and maximizing gains when your investment decisions turn out to be profitable. Risk management should be a process that never is to be neglected. A risk-reward ratio of a 1:2, meaning you risk $100 to gain at least $200, is the first step to implementing this strategy. Higher risk-reward ratios are suggested for investors who make a few trades per month or year, but when they win, they win big, and when they lose, they lose little.
Paul Getty
"Buy when everyone else is selling and hold until everyone else is buying," Paul Getty advised. Contrarian investing involves buying assets when they are out of favor and holding onto them until they become popular again, potentially leading to higher returns. Searching for overlooked sectors and industries that have been laggards in 2023 or for stocks near their 52-week lows could result in strong gains when and if a rotation in stocks appears later in 2023.
Benjamin Graham
"The investor's chief problem and even his worst enemy is likely to be himself," Benjamin Graham once said. Emotions, biases and lack of discipline can lead investors to make irrational decisions, harming their portfolio's performance. The best example of this is the concept of revenge trading. This is when you have a trade that results in a loss, and you cannot accept the idea you were wrong. You continue to invest more in a particular stock to cover your loss and unfortunately, you lose again, as the market ignores your feelings. Emotions can become a nightmare in investing if you cannot control them. Fear and greed are not helpful, but overconfidence is dangerous, too, as it can lead to taking very high-risk positions, which are unnecessary.
Sir John Templeton
According to Sir John Templeton, "The four most dangerous words in investing are: 'This time it's different.'"
Investors should be cautious about assuming that current market conditions will deviate from historical patterns. History often repeats itself in the financial markets. The quote essentially warns against the dangerous mindset of believing that current market conditions or investment trends are somehow exempt from historical patterns and precedents. When investors start to believe that "this time" the rules have changed and that past experiences and market behaviors no longer apply, they become susceptible to making irrational decisions and taking on excessive risks.
History has shown that financial markets and economies tend to move in cycles. There are periods of growth and prosperity followed by downturns and recessions. These cycles are driven by various factors, including human behavior, market sentiment, economic fundamentals and external events.
When investors believe the current situation is entirely different from anything experienced before, they may become overly optimistic and excessively allocate their investments based on a flawed perception. This can lead to asset bubbles, speculative frenzies and eventual market corrections when reality catches up.
Final thoughts
Remember that renowned gurus can offer valuable insights, but successful investing requires careful research, risk management and a well-thought-out strategy. Investing is like trying to find a parking spot in a crowded city – you might circle around a lot, but when you finally find one, it feels like winning the lottery.
