I guess it pays to be temperamentful and "do nothing" if the pool of money you get to play with is huge to begin with. If you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.
What Do the Best Investors Do That the Rest Don’t?
21–30 of 63 posts
Re: What Do the Best Investors Do That the Rest Don’t?
#22My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…
Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!
Re: What Do the Best Investors Do That the Rest Don’t?
#23My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a pho…
Yes, there are. I won't say it's easy, but it's possible to outperform the market without relying on the element of luck over a long term. Often, you don't hear about these folks because they are succeeding at a much smaller scale.
The reason is simple. The market, even rational as it is, gives you chances to make a great deal of money. META was $89 only a few months back. APPL was once trading at P/E of 10. TSLA is now 2.5x from its recent bottom. Of course, the boat has sailed now. Now, you can say investors who made money here were just lucky, or you can see how they ignored the temporary negative sentiment and invested in a company with solid fundamentals.
It's a myth that you can't beat the market. If you know how to seize an opportunity, you perfectly can. My investment philosophy is to keep investing in ETFs, but also keep an eye on bargains.
Re: What Do the Best Investors Do That the Rest Don’t?
#24I think the strongest edge one can have is to be able to invest independent of any market sentiment. If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway.
It is far too easy to get wrapped up into wanting the best possible return by buying at the lowest price, and selling at the highest price. The reality is that's near impossible. However, buying companies that by the numbers indicate a 20% return, even if they night get cheaper in a crash, is a decent way to actually get a 20% return. The problem is those kinds of investments only show up with severe uncertainty and negative sentiment. By the time they feel good to invest in the price has reflected that change in sentiment.
Of course, this all presupposes skill at evaluating these businesses accurately and reliably, so losers don't drag you down when the negative sentiment is actually correct :/.
Re: What Do the Best Investors Do That the Rest Don’t?
#25- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…
Nobody is lucky for as long as Berkshire Hathaway has been successfully doing this.
Re: What Do the Best Investors Do That the Rest Don’t?
#26- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…
Like with gambling or startups, out of every 1000, maybe 1 will make it big; out of those, a fraction will choose to become famous / a known name, and that's the survivorship bias that gets thousands more amateur investors to try their hand and get rich quick, turning their life savings into another fraction of a percentage of these top investors' accounts.
For most of us regular people, slow and safe investments are the way to go. Get savings, get some interest on that to at least partially counteract inflation, buy a house, avoid debts, loans and subscriptions as much as you can. And I'm aware that all that sane money management advice isn't even an option for a lot of people.
Re: What Do the Best Investors Do That the Rest Don’t?
#27It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.
Value investors pretty much do not use risk control as known from shorter term trading. They just buy low and sell when facts change (down) or prices change (up).
I think diversification is a key tenet of value investing. The margin of safety applies to the individual company but that doesn't guarantee success, so a diversified portfolio is one key method of reducing risk.
Re: What Do the Best Investors Do That the Rest Don’t?
#28- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…
Nobody is lucky for as long as Berkshire Hathaway has been successfully doing this.
Sure, that's why there are three more items on the list.
Re: What Do the Best Investors Do That the Rest Don’t?
#29> 1. Temperament [...] My observation of many investors over my 20+ years of professional investing has led me to believe that temperament cannot be learned
I would be interested in whether this is a justified belief or not and whether there is actual research on that topic. Does anyone have any insights on this?
Re: What Do the Best Investors Do That the Rest Don’t?
#30It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.
You are right that position sizing is important but for the opposite reason. Knowing your winners and then full on concentrating in them is statistically a big part of what makes successful winners.
For traders maybe, because they pyramid the position on the back of any gains made. But you also don't want to have so much invested in one company that it becomes make or break. A 10% loss on 5% of your portfolio is way more manageable than 10% on 50% of your portfolio.