Finance 4. Warren Buffett: forget the crowd “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” Some classic investment wisdom fromMr. Buffett here, and a statement that gives you a pretty good insight into the investment process that led him to become one of the heroes of millionaires and would-be millionaires everywhere. Throughout his 51-year tenure as CEO of his investment holding company, Buffett has made a fortune by developing independent viewpoints that often run contrary to what most of the “experts” on Wall Street happen to be thinking at any given time. It’s something to keep in mind today, as market gains seem to be increasingly dominated by a small handful of hyped-up tech stocks, hot sectors and meme stocks, along with anything and everything remotely connected with cryptocurrencies. While there’s no denying that early investors have made a good deal of money on such investments, piling into them now does seem like following the crowd rather than independent investment thinking. Instead of asking what the “next big thing” might be, or where the investment crowd is going, Buffett suggests that most investors would be better served if they asked where the crowd isn’t −what sector of the market is currently unloved? What stocks are underappreciated? What businesses are the crowd selling indiscriminately?What market events or economic news are others fearful of? As the Oracle of Omaha rightfully points out, the answer to any or all of these questions is usually a good place to start looking for your next investment idea. 5. Benjamin Graham: it’s not how smart you are. It’s howdisciplinedyou are “The investor’s chief problem − even his worst enemy− is likely to be himself. In the end, how your investments behave is much less important than how you behave.” An absolutely essential truism, expressed by the philosophical “father” of what we now call value investing. Graham understood that every investor faces a struggle to suppress one’s emotions (typically greed or fear, in varying degrees) whenmaking financial decisions. As Graham accurately points out, for most investors, the ability to manage one’s emotions will likely play a far greater role in any investment success (or lack thereof) than picking great stocks, figuring out where the market is headed or understanding howmacroeconomic forces such as inflation, interest rates or employment levels ever will. For Graham, the solution was to ignore the subjective emotions and opinions that drive so many financial decisions and, instead, focus on the objective numbers and ratios that can tell you whether an investment is worth buying into. The system of value investing which he developed was a way of applying reason, logic and business discipline to what was − up until that time − a process dominated by emotions, guesswork and intuition. The process is still an excellent method for ensuring that your own behaviour doesn’t derail your financial goals. 6. John Bogle: understand your risk tolerance “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” The founder and guiding visionary ofThe Vanguard Group, one of the world’s largest managers of low-cost exchange-traded funds (ETFs), Bogle was well-known for his keep-it-simple, low-cost investment approach. Bogle has also been a big advocate for investors understanding enough about themselves and their tolerance for market volatility before they even start putting their money into the market. If it’s been a while since you’ve asked yourself how you’d feel if your portfolio dropped precipitously in value in a matter of weeks, it’s a good time to do so now. If you find your heart skipping a beat at the thought of your equity positions dropping by 20% in a short period of time − which, as Bogle intimates, would be a fairly normal correction by historical standards − perhaps it’s a good idea to take profits on the positions that have gained the most, or at least trim back some of your more aggressive, growth-oriented positions now. Always remember: the best time to understand your risk tolerance and to bring your portfolio back in line with it, isbeforea downturn strikes. 28 | www.snowbirds.org
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