Foundational beliefs of the world’s best investors (and how you can use them to your advantage)
Investing is, by and large, a numbers game. Calculating rates of return, measuring economic data, interpreting statistics and operating ratios and risk measurements which can tell you whether a building or a bond or a business is actually a good investment – a basic understanding of all of these is critical to the long-term success of any investor.
But there is another side to investing, one that is arguably more important than percentages and ratios and calculations. Call it a belief system: a collection of core values that shape and inform the way in which successful investors interpret economic information, formulate long-term strategy and take concrete financial action. These beliefs form a kind of “North Star” that provides confidence, discipline and comfort when they’re faced with difficult decisions or challenging times.
Most of us don’t have the same business or financial expertise as Warren Buffett or George Soros or Prem Watsa or other famous investors. And very likely our personal financial goals, our life circumstances and our investment portfolios will be quite different as well. But there’s still considerable value in taking a look at the core beliefs that successful investors share, and trying to understand how we might use those beliefs to guide us in our ongoing efforts to build resilient portfolios and long-term financial security.
With that in mind, here’s a collection of the core investment values of successful investors. Call it the millionaire’s manifesto: the financial beliefs that help the best investors in the world build, protect and manage their wealth throughout their lives.
Belief #1: there are no shortcuts.
First things first: millionaires know (through hard experience) that there are no shortcuts to building wealth, no secret to becoming a better investor, no “magic potion” that will suddenly turn you into a master of money management. Most millionaires got that way by diving in and putting their money to work, learning from their mistakes and building their knowledge and acumen over a number of years, or even decades in many cases. And, while some have indeed become wealthy on a single big trade or large asset sale, most will tell you that the one event which made them wealthy was actually the product of years of personal effort, research and perhaps even luck, rather than some kind of “get rich quick” process or born-with-it ability which a lot of people assume that they have.
Belief #2: wealth building is about more than making money.
Most millionaires have, by definition, made a lot of money. At the same time, most of them have been driven to this level of success by some kind of higher purpose: they want to grow and secure their wealth for some reason beyond the sheer joy of counting dollars or buying more “bling.” And that higher purpose gave them the motivation to learn, to get better and to make wealth building a core of their lives which, in turn, made them financially successful. There’s wisdom there for the rest of us: whether you want to provide a high quality of life for your family, to secure your own financial independence, build a business or accomplish some other life goal, the drive or direction behind your effort to build wealth will be more effective if there’s something behind it other than the desire for “more.”
Belief #3: a cool head beats a high IQ.
Contrary to popular belief, most millionaires are a pretty humble lot. They’re generally quick to acknowledge that they aren’t the smartest people in the room, and that there are plenty of things about the world (and about the financial arena) which they don’t know. But when it comes to resilience, discipline, patience and self-control, they would likely all agree that those are qualities which have had a direct impact on their investment success and their ability to make good money decisions. And they all acknowledge that the abilities to stay calm, stay rational and look for the opportunity that lies within every crisis are far more important than raw intelligence. Think of that the next time the stock market takes a turn for the worse.
Belief #4: not every investment works out. Get over it.
Millionaires understand bear markets and corrections are inevitable. They realize some business ideas just don’t work out. And they know unexpected financial calamity can happen even to the most prepared people. But that knowledge doesn’t stop them from looking for the next opportunity, or make them fearful and risk-averse. Instead of cashing out and sitting on the sidelines for a downturn to be over, they maintain their focus on their long-term goals. Instead of waiting for a losing position to “come back,” they cut their losses and reallocate their funds to another idea. Their belief that even the best investors can’t get it right every single time prevents them from feeling defensive when one of their own ideas doesn’t work—which in turn helps prevent financial mistakes and missteps from becoming full-blown financial disasters. We should all do the same.
Belief #5: getting the timing right matters a lot less than you think.
Listen to the stock financial gurus and you’ll hear a lot of talk about whether it’s the right time to get in or get out of a given investment, or a particular asset class, or the market in general. Millionaires believe that most such discussion doesn’t really matter most of the time. Sure, you can make a lot of money buying or selling at the right time. But most successful investors have come to understand that great timing is often as much about luck as it is about investment insight or market intelligence. Instead of worrying about pulling the trigger at exactly the right time, successful millionaires put their energy into other, more fruitful activities: identifying quality, undervalued investments; figuring out long-term socio-economic trends on which they can capitalize; optimizing their asset allocation to get them closer to their financial and life goals; and so on. Something to keep in mind the next time we find ourselves fretting about whether now is the time to buy, sell or hold.
Belief #6: be honest with yourself about risk…
With all of the excitement that often surrounds a possible investment idea, it’s fairly easy to disregard or downplay the possibility of losing money on a given investment. Millionaires don’t make this mistake. Before they put their money into any idea, they engage in an honest internal “what if?” dialogue with themselves: what if this goes wrong? What have I overlooked or ignored about this opportunity? What are other people thinking about this investment, and why? If things do go wrong, how could it impact other parts of my portfolio, or my ability to accomplish my life goals? By asking these critical questions about risk (and being brutally honest with the answers), they can often avoid getting into sticky financial situations in the first place.
Belief #7: …but remember, you can’t avoid it altogether.
Closely related to the above: at the same time as they assess the risk of any investment, successful investors understand that without taking on at least some risk, there can be no possibility for investment gains. Instead of trying to avoid risk altogether, wealthy individuals learn to mitigate, minimize or offset risk whenever they can. They do a lot of research on any investment they consider (or hire professional managers and advisors to do it for them). They diversify their portfolios and offset big risks with hedging strategies. And they align the necessity of risk with specific investment goals – if they don’t need to take the risk to achieve what they want to achieve, they don’t take it. Above all, they make sure that every risk which they take is deliberate, well-understood and kept manageable relative to their overall finances. A good approach for all of us.
Belief #8: you have to know yourself.
Hard-won experience has taught most successful investors that wealth is something that is felt as much as earned: that behind the cold logic of numbers, projections and business analysis lies a whole lot of greed and fear, excitement and despair, optimism and anxiety – and these emotions often end up driving more investment decisions than the numbers do. This is why millionaires believe that it’s crucial to understand how to recognize and control those emotions and identify how they can short-circuit the rational side of one’s brain. By knowing how you react to market events and portfolio ups and downs, you can be on guard for emotions that disrupt rational thinking, generate cognitive biases and cause blind spots and miscalculations in how you assess opportunity and risk. This self-knowledge can make you a much better investor over time.
Belief #9: there will always be other opportunities.
Every veteran investor has a few stories of “the one that got away” – the opportunity which they mistakenly took a pass on, the trend that they didn’t truly appreciate, the investment which they sold way too early, and so on. Millionaires have plenty of these stories, too. But they tend not to dwell on them too much. Instead, they believe that there will be another opportunity down the road, and all they have to do is be patient until it reveals itself. Not only does this perspective prevent them from beating themselves up too much, it also serves as a kind of inoculation against the pressure and fear-of-missing-out thinking that so often defines the hyped-up “hot stocks” and “get in quick” ideas which arise in the investment world. Instead of jumping blindly into ideas because you fear missing out, you bide your time and wait for the best of the best.
Belief# 10: you don’t have to swing for the fences every time.
In a similar fashion, most millionaires have stories about the big wins – the apartment building or stock position or business that doubled, tripled or grew exponentially over the years. But they also know that when it comes to investing, such stories are the joyful exception, not the rule. Sure, they sometimes take on oversized positions in ideas which they’ve fully researched and feel strongly about. But they also understand that they don’t always have to take big risks and make big money on every single investment. To use a baseball analogy: they don’t have to swing for the fences every time – singles and doubles are a perfectly good strategy to building your wealth over time. And, because you know that you don’t have to hit a home run with every investment you make, you’re less inclined to swing wildly by taking on too much risk. In an age seemingly full of meme stocks and speculative, get-rich-quick ideas, it’s good advice: a well-diversified portfolio of low-cost, quality investments which you feel comfortable holding for the long term can be just as good at building wealth as the big wins.
Belief #11: speculating and investing are not the same game.
Guessing which way the market is going to go, betting big on meme stocks, or putting money into the next big cryptocurrency – yup, all of these can make you money. And many millionaires have made a lot of money over their lives by rolling the dice on such opportunities from time to time. But when they do, they know that they are attempting to profit from dramatic, rapid rises in price based on the sentiment or behaviour of other buyers and sellers. That’s called speculating, and it’s a fundamentally different game than putting money behind long-term growth opportunities in undervalued or underappreciated assets. And, if they must speculate, they follow the rules of the game: never go “all in” on any speculation; keep expectations reasonable; and get ready to get out quickly if things don’t work out. If you want to play that game, do what the millionaires do – be honest about what you’re doing and don’t let a bad speculation make a big impact on your finances.
Belief #12: the best investment that you can make is the one which you make in yourself.
Most millionaires have made dozens, if not hundreds of successful investments over the course of their lives. But nearly all of them would agree that none of these came anywhere close to the investment which they made in themselves. There are, of course, many forms such an investment can take; getting an education is the most obvious one. Starting your own business or side hustle is another. Upgrading professional skills, or learning anything that monetizes your unique talents is yet another. Whatever form it takes, successful investors know that knowledge and skills offer an incredible return: they are assets that can never be seized or go bankrupt, are completely immune to macroeconomic problems such as inflation or rising interest rates and they will likely pay you dividends throughout all of your life. It’s something that a lot of us overlook when we think about investing. But millionaires don’t.
Belief #13: humility builds wealth. Overconfidence destroys it.
There are technically a lot of ways to lose money. But nearly all of them are connected in some way to one overarching error: overconfidence, the belief that you’re smarter, more skillful, know more or have more innate financial talent than the great mass of investors whom we call “the market.” Millionaires know that this is nothing more than good old-fashioned hubris. Sure, many of them are confident in what they know about a given asset or investment. But the best of them always understand that there’s always a contrary opinion, a different assessment or an opposite point of view regarding any given investment. And even if they ultimately don’t share that contrary opinion or differing point of view, they’re humble enough to respect it, listen to it and evaluate their own opinions against it. Throughout their investment lives, they make a point of staying humble and understanding the limits of their own financial knowledge. And, while they are confident in their own investment talents, they realize that when it comes to building wealth, there is always something at which they can get better, or about which they can know more. We should all do the same.
Belief #14: most of the time, focus most of your effort on what you can mostly control.
If you’ve gotten this far into this article, chances are that you pay at least passing attention to economic indicators and investment news. Millionaires do, too. But they also believe that most economic information (inflation predictions, interest rate trends, tax policy, GDP reports, short-term market moves, etc.) is impossible to predict and ultimately outside of their control. So, they put the majority of their financial focus on what they can control: their long-term financial plan, their asset allocation, the amount that they save and spend, writing their estate plan and so on. It’s not that big-picture macroeconomic events don’t matter – it’s just that trying to predict them is a guessing game, one that ultimately takes time away from other aspects of their finances which have a more direct impact on their wealth and well-being.
Belief #15. debt is like fire: a very useful tool that demands respect.
Successful investors often have a more balanced relationship with debt than is typical of Canadians of more modest means. They don’t see it as a bugaboo or monster to avoid at all costs. Nor do they see it as something which they can pile up and blissfully ignore. Rather, they see it as a powerful tool, one that can amplify their wealth-building efforts when used properly. When used to purchase assets that appreciate in value, debt can be indispensable – think about a mortgage on a primary residence or an investment property, for example, or a loan taken out to fund a business expansion, or one taken to invest in stocks or bonds. At the same time, they believe that much like fire, if debt isn’t managed and monitored, it can quickly grow to consume everything around it.
Belief #16: you need to do the work.
Talk to millionaires about their investments and you’ll get the impression that they spend a lot of time thinking about them. Partly it’s because they enjoy it, and partly it’s because they know that when it comes to making sound financial decisions, there is no substitute for doing the work. For some, that means digging into operating numbers, analyzing prices and deals and poring over reports and opinions. For others, it means hiring professional asset managers, advisors, accountants and other professionals who can do the work for them. Either way, millionaires understand that if you’re not willing to roll up your sleeves, get out the pencil and spend some time thinking about and analyzing opportunities in whatever avenue you choose (business, real estate, stocks and bonds, all of the above), it will be very, very hard to be a millionaire one day.
Belief #17: don’t leave messes behind.
Millionaires understand that the best legacy that we can leave to our families is one in which there is no mess: no guesswork, no complications, no legal hassles and no in-fighting among heirs. No, that’s not always possible for every family and millionaires certainly understand that. But that’s what they aim for, by taking the time and the effort to write their wills, declare their powers of attorney, select appropriate executors and communicate their estate intentions to their heirs well in advance of their eventual passing. They view this work not as an expensive chore or some sort of psychological hardship, but as the last and arguably most important element of a lifetime of fiscal responsibility, and a tangible example of the legacy that they wish to leave behind.
Belief #18: time is the most precious asset of all.
Time is the most finite of all finite resources – and all of the wealth in the world can’t buy it back. That’s why millionaires believe that managing it, protecting it and freeing up as much of it as they can is a very good investment. There are many ways they do this – by building passive income sources, by delegating or hiring out work which they don’t want to do, or even something as simple as having goods and services delivered instead of driving around town to get them. And when they invest their time in this way, they make their investment even more valuable by doing something worthwhile and valuable with that time: catching up with family or friends, for example. By exercising and working out. By pursuing a hobby or project about which they’re passionate or by donating time to a cause that they care about. Or even by reading a good book. Whatever it is, there’s a purpose and intention to their investment in time, just as there is an intention and purpose to every investment that they make.
Belief #19: there’s more to life than money.
Perhaps the “core-est” of all these core beliefs. We’ve all heard stories or seen Hollywood movies about the millionaire obsessed with the trappings of wealth, the one who’s constantly scheming about how to accumulate “more.” Sure, there are people like that. But in the real world, most millionaires don’t conform to this stereotype. Most successful investors acknowledge that gaining mastery over money is one of the most important things in life. But they also understand that there are many others that are ultimately more important. Things such as their health. Their hobbies, passions and interests. The causes that they care about. Their personal and professional reputations. And, of course, their friends and families. As much as they spend time thinking about their wealth, they never let it dominate or supercede these other important elements of their lives. This is the belief that’s the foundation of all others, the core value that helps the best investors in the world live their best lives, no matter how much they happen to have in the bank.