Timeless Wisdom From the World’s Most Successful Investors

And how you can use it to become a successful investor yourself

Maybe you’re just starting with investing. Maybe you’re a veteran who’s been at it for decades. Or, perhaps you’re somewhere in between. However long you’ve been at the investment game, one thing which you’ll have to wrestle with is the process of becoming a better investor. Because unlike, say, your high school chemistry class, your investment education is something that never really ends; there’s always another strategy to learn, another investment idea to research or another market analysis to wrap your head around.

But that brings up an important question: how is that supposed to happen? Other than learning the hard way − through the mistakes and missteps that you make with your own money (a time-consuming and expensive process) − how exactly should you educate yourself about the strategies, the insights and the mindset that can turn you into a successful investor?

Well, one solution is to emulate those who have come before. Indeed, most of the world’s successful investors have been more than willing to share what they’ve learned with their less-experienced counterparts. Between their interviews with the financial press, letters and reports which they’ve written for their own investment funds, and the occasional book sold on Amazon, there’s more than enough material for the average investor to enrol in a “master class” on investing.

With that in mind, here are 13 essential pieces of timeless wisdom from some of the best investors whom the world has ever known, along with some basic ideas about how you can use that wisdom in today’s investment climate, in order to protect your portfolio and become a better investor yourself.

1. Warren Buffett: defence wins the investment game

“Rule #1: don’t lose money. Rule #2: don’t forget rule #1.”

Perhaps the simplest and easiest-to-understand of all financial wisdom, from Warren Buffett, chairman of the Berkshire Hathaway Corporation and one of the most successful investors of all time. Buffet’s point is a pithy reminder that for most snowbirds, most of the time, playing defence − sticking to conservative, top-quality investments which protect our capital and limit our downside risk − is a far wiser investment strategy than taking on big risks in an effort to become fabulously rich.

This is particularly important wisdom to keep in mind today, as an already long-in-the-tooth bull market continues to rack up all-time highs. If you’ve been an investor in stocks over the past few years, you’ve probably seen some tremendous gains, particularly if you’ve been an investor in more aggressive, growth-oriented sectors such as technology. That’s great but, going forward, it probably makes sense to remember Mr. Buffett’s wisdom and realign your portfolio to a more defensive posture. Instead of assuming that the good times will last forever, shift your focus to capital preservation: choose easy-to-understand investments that operate in well-established industries selling products and services that are likely to be in demand for many years. If you remember nothing else from this article save that one lesson, you’ve already done a lot to protect your portfolio, no matter what the market does.

2. Peter Lynch: always do your homework

“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.”

Sometimes it seems as if the stock market is a giant roulette wheel. Or a big lottery ticket. But the truth is, there’s a business lying behind every stock ticker which you see flashing by on the nightly news. The above wisdom from Peter Lynch, famous former manager of the giant Fidelity Magellan Fund (which averaged a 29.3% return over the 13 or so years for which he ran the fund), reminds us that every investment should only be made after taking the time to do our research, analysis and an honest evaluation of the future prospects of the business that lies behind the stock. Failure to do this fundamental homework means that we’re making investment decisions based on blind guesswork or gambling-like speculation.

Again, this is particularly important wisdom to keep in mind right now, as so-called “meme stocks” and super-hyped industries (Electric cars! Artificial intelligence! Big data! The “metaverse”!) generate more than their fair share of both headlines and returns. Sure, some of these investments may end up making investors rich. But many more will end up being nothing more than hot air. And you’ll never know the difference unless you do what Peter Lynch advises you to do: roll up your sleeves, take a hard look at the underlying business and come to an independent assessment of its future prospects (or lack thereof).

3. Sir John Templeton: study history to understand downturns

“The four most dangerous words in investing are: ‘This time it’s different.’”

Sir John was the founder and chief investment officer of one of the world’s largest and most respected mutual fund families. His Templeton Growth Fund, which he managed from 1954 to 1992, was one of the first true “globe-trotting” funds that searched for investment opportunities in all corners of the financial world. Over that time, Sir John’s success was derived in no small part from his keen sense of perspective: that the stock market moves in cycles, with booms and busts coming and going today, much as they have done before through history.

In today’s age of “clickbait”-style financial headlines and emotionally charged investment shows, Sir John’s simple wisdom stands apart. Throughout history, there have been many market downturns, crashes and disasters. And, over the course of our investment careers, we will almost certainly see many more. No matter how dire events seem right now, no matter how “novel” the economic problems that are currently facing us, no matter how distressing the political or market news may be, it’s good to keep Sir John’s advice in mind: investors have faced similar problems before. And, by appreciating how past investors have survived (and thrived) during difficult times, we can understand how we can keep cool in the face of market turmoil.

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 from Mr. 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 how disciplined you 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) when making 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 how macroeconomic 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 of The 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, is before a downturn strikes.

7. Peter Lynch: quality counts

“Go for a business that any idiot can run − because, sooner or later, any idiot is probably going to run it.”

This rather colourful quotation from Peter Lynch is an important reminder that some businesses (and, by extension, some investments) are better than others, enjoying inherent structural advantages that will put them ahead of their competition for long periods of time. Part of Lynch’s investment secret was to identify such quality, “idiot-proof” businesses and load up on them, while ignoring commodity-driven businesses that have no inherent competitive advantage.

Most snowbirds would be well-served by following Lynch’s lead. When it comes to building your stock portfolio, focus on quality: businesses with sound structures and lasting competitive advantages that help defend them from what Lynch might call the “human factor” − poor decisions made by poor management that result in poor execution and poor stock performance. While no business is ever “risk free” or immune from danger, focusing on the “best of the best” businesses can help position your portfolio for steady, long-term growth, while inoculating it somewhat from volatility.

8. Paul Samuelson: never confuse investing and speculation

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Samuelson was a Nobel Prize-winning economist and a very early investor in Warren Buffett’s Berkshire Hathaway Corporation − an investment that ended up making him very, very rich. His wisdom reflects a fundamental truth that he, Buffett and many other successful investors followed throughout their lives: stock investing should be rational, logical and as boring as possible. Sure, making money is exciting. But taking irrational risks or wild financial bets in pursuit of that excitement − what we typically call “gambling” − should have no part in it.

It’s an important lesson to keep in mind as we enter what may be a different phase of the current bull market. Over the past several years, it’s been easy to take a few gambles on ideas that seemed far-fetched, or businesses that had interesting ideas but little to show in the way of profit − maybe you had a couple of such gambles work out for you. That’s great. But don’t ever confuse what you’re doing with the careful, reasoned process of analyzing a business and making a careful assessment of risk and reward.

Just to be clear, there’s nothing inherently wrong with speculating − a lot of people make a lot of money in a very short period of time by buying or selling a “hot stock” at the right time. But, if you do it, make sure that you know what you’re getting into, keep your speculation percentage as a manageable portion of your overall portfolio (5-10% of the total seems a good general rule) and be ready to cut your losses quickly if the market takes a turn for the worse.

9. John D. Rockefeller: focus on your goals, not on the market

“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.”

A lot of content in the financial press (columns in the newspaper, analysts on TV, pundits on blogs and websites, even articles which you might read in the magazine that you’re holding right now) all talk at length about the goings-on in the stock market. But these words from John D. Rockefeller − whom many consider to be the richest man who ever lived − remind us that the market is only a means to an end. The true measure of investment success isn’t simply the amassing of wealth for its own sake. Rather, it’s the ability to have a vision of what you want to achieve with that wealth.

This is not to say that we shouldn’t pay attention to what’s going on in the stock market, or forget about trying to understanding how it works, or how we might get it to work for us. But as much time as we spend reading about and thinking about the market, we should spend an equal amount of time focused on crafting a personal financial plan − the road map that outlines why we’re saving and investing, what we hope to achieve with our money and how we’re going to do it.

10. Baron Nathan Mayer de Rothschild: in every crisis, there is opportunity

“The time to buy is when there’s blood in the streets.”

Perhaps the most famous piece of contrarian wisdom ever expressed, words that have been repeated by many successful investors over the course of history, but rarely so colourfully. The 18th-century British peer made a not-so-small fortune by putting his family’s money to work in extremely chaotic, politically turbulent times − in his case, immediately following the Battle of Waterloo. By buying assets when everyone else was predicting disaster and upheaval, the Baron secured his family’s wealth for multiple generations.

While we may not enjoy the benefit of a British peerage, the Baron’s wisdom holds a lesson for all of us, one that aligns with the words of Buffett above. Bad times often make for good investments, and the point of maximum market pessimism is often the point at which maximum profits can be made − if you have the discipline and patience to weather the market storm. Worth keeping in mind as the possibility of a correction or downturn grows, and news of political turmoil seems to be doing the same.

11. Sir John Templeton: diversification works

“Diversification is a safety factor that is essential because we should be humble enough to admit we can be wrong.”

As Sir John makes clear, even the best investors will get it wrong sometimes. And, when they do, Sir John’s simple solution of diversification remains one of the most effective ways to protect ourselves against that risk. By spreading our investment eggs across multiple baskets, we protect ourselves if any one of those baskets ends up crashing to the ground. Because sooner or later, one of them will; because as Sir John points out, there is no such thing as the investor who gets it right 100% of the time.

Such humility seems to be in short supply today. Over the past decade or so, the U.S. market has made most investors seem like geniuses, and anyone with the foresight to go “all in” on the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) has made out like a bandit. Will the good times continue for FAANG and other tech-oriented investors? It’s not certain. What is certain, however, is that the smart money is almost surely spreading their assets into other ideas, other industries and other markets just in case the outrageously optimistic predictions of an endlessly profitable future for the big names of Silicon Valley turns out to be, well, wrong.

12. Robert G. Allen: playing it too safe may be the biggest risk of all

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”

Some excellent wisdom here, particularly for those of us whose stomachs get a little “urrpy” whenever news of market volatility picks up. Robert Allen spent a number of years as an investment advisor and real estate entrepreneur before eventually putting down the wisdom which he had gained, into multiple best-selling financial guidebooks. His wry observation about the source of wealth seems obvious to those of us familiar with how little we’re earning on savings accounts, GICs and short-term bonds right now. But there’s actually a very poignant insight about the concept of risk and reward in these words as well. In our quest to eliminate stock market risk, we don’t actually eliminate risk − we simply swap it out for the risk of outliving the money in our savings accounts.

In your effort to avoid stock market volatility, we may end up accepting a rate of return that simply won’t keep up with inflation. In any one year, that’s probably not a big deal. But, over time, that steady, inevitable erosion of our purchasing power can be a significant risk, and can lead to a serious reduction in the funds available to fuel a long and happy retirement. Something to keep in mind if the market gets choppy in the months ahead and you find yourself tempted to cash out your equity positions for something a little less volatile.

13. Warren Buffett: money is important. But it’s not the most important.

“If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.”

It’s fitting that the person whom many consider to be the wisest investor of all offers this, perhaps the most important financial wisdom that’s ever been expressed. Wisdom that’s definitely worth remembering as we approach that time in life when our thoughts turn to what we leave behind.

In the months to come, we’re likely to hear about all manner of economic challenges, financial problems and stock market crises. In all likelihood, much of it will sound pretty important to pay attention to − and maybe a little scary, too. But no matter how important it sounds, such topics pale in comparison to the truly important things in life: our family and friends, our health, our important life goals, our reputation, the legacy we leave behind for the people and causes that matter to us.

Sure, we should pay attention to investing and our portfolio, because it will always be a vitally important part of life. But it should never be the most important: it should never come to dominate our thoughts, control our lives or derail us from enjoying the friendship and love of those we care about. If you can remember this essential piece of wisdom, then you’ve not only become a wiser, more successful investor − you’ve become a wiser, more successful person as well.

By James Dolan