Aphorisms are short bursts of knowledge that you really have to think about. In our immediate gratification society, this is no easy task. Some of the greatest investors in the world spend an inordinate amount of time thinking. You can include Warren Buffet and Charlie Munger at the top of this list.
Revisiting these timeless bits of knowledge is a terrific idea for anyone who wants to be serious about thinking and investing. The German writer and statesman, Johann Goethe, provides a treasure trove of material for those who are interested. Not to be a snob, Mike Tyson’s title quote also applies.
Many feel critical thinking regarding topics outside the world of finance is a waste of time; short-term trading and following gut instincts are their preferred strategies.
Others invest their time in devising complex strategies. Tradebots and sophisticated algorithms can do some very impressive things, but they cannot think and apply common sense. We found that out all too well during two recent market flash crashes.
Thinking will give you an advantage no machine can ever provide (yet).
Here are some classic aphorisms from Goethe that can be applied to your investment arsenal. Who would have thought some old German dead guy could provide the keys to investing success in 2015 and beyond?
“Tell me with whom you associate and I will tell you who you are. If I know with what you busy yourself, I know what you amount to.”
If you are an investment advisor and you surround yourself with cohorts whose biggest goal in life is meeting a monthly sales quota, things are not right. Mortgaging a family’s financial future so you can purchase a big screen T.V. is not the reason our maker put you on this planet.
Change your environment — and your life — by looking to do well, by doing good. Yes, there are firms out there that will let you accomplish this along with making a good living. Seek them out.
“We do not have to visit a madhouse to find disordered minds: Our planet is the mental institution of the universe.”
Substitute the word markets for planet and you will see this guy was right on the mark. How else can you explain companies losing billions in market value because they missed an analyst’s earning estimate by a penny? Buying penny stocks, naked options and triple- leveraged funds are clear signs of insanity.
If you understand that there is usually no rhyme or reason for daily movements of the markets, you will be way ahead of the other inmates.
“Whoever demands too much and takes joy in complexity is likely to fall prey to error.”
Wow, was this guy talking about Long Term Capital Management or the geniuses who brought us the mortgage crisis or what? Wall Street continues to churn out complex investments that often put our economy at risk and drastically lower returns for the average investor. Their sole purpose is to generate more fees.
Understanding there is no exact formula for investing success is the first step toward enlightenment. Arrogance is directly correlated with losing lots of money in this realm. In investing, when you think you have things all figured out is when you really better start to worry.
“To know is not enough, one has to apply knowledge; it is not enough to will, one has to act.”
Most investors fill out their little risk tolerance surveys and profess that they will buy rather than sell when markets take a big dip. This rarely turns out to be the case. Investors tend to buy high and sell low creating the so-called behavior gap. Like Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.”
Understand emotion plays a huge rule in determining whether you will be a successful investor not. Having control of a massive amount of knowledge, but no power over your often irrational behavior will lead to disaster. Learning how to control your emotions and apply this to investment decisions is the most important quality for a good investor.
“Men who think deeply and seriously have a hard time with the public at large.”
Often very wise men will be labeled as fools in the midst of market manias. When stocks are on a roll why buy an index fund when you could double your money with iamagreaterfool.com in a few weeks? Who needs advice from honest people with boatloads of empirical data when my brother-in-law has a hot tip?
Eventually these people will be proven right, but the crowd will often be too focused on its latest investment sugar rush to notice. From Dutch Tulips, to the Nifty Fifty and Marijuana stocks, wise men have been ignored by the crowd throughout history until it was too late.
If you find yourself doing something that makes you feel good because everyone else is doing it also, you are doing something wrong. Often successful investing can be a very lonely place. If you have a lot of company with your ideas and the masses agree with you, be afraid. Be very afraid.
Like anything else that is worthwhile, being a good investor requires much blood and treasure. Taking the time to think is a cost that will pay for itself many times over. The alternative of 140 characters and the illusion of knowledge won’t cut it.