Investing | Article
Invaluable Investing Wisdom We Learnt from The Investing Greats
by Nicole Ng | 30 Mar 2023 | 8 mins read
This article is brought to you by the National Library Board
Almost anyone can become an investor. All you need to do is open an investing or brokerage account, deposit money, and start buying into the markets. Easy peasy.
But what’s not so easy peasy is being a decent investor – that is to say, being good enough to make a modest amount of money from your investments. And of those decent investors, only a fraction of them go on to become extremely successful investors who’ve amassed a fortune from their investments.
You might have heard of some of these successful investors – Warren Buffett, Charlie Munger, Howard Marks, Benjamin Graham, and Peter Lynch just to name a few.
Many of us dream of being able to replicate their investment success. But let’s be real, it’s almost impossible to reproduce the same results if all we did was just buy the stocks that these investors have bought. Instead, it’ll be better to learn from these investors by studying their philosophies, attitudes and investment values.
Thankfully, it’s extremely easy these days to tap into a font of wisdom from investors. With just a click of a button, we can access hundreds of books and articles written by or written about these investing greats to glean invaluable insights that can make us better investors.
Here are five key takeaways we learnt from reading about these investing greats that can help all of us with our investment journey.
“Price is what you pay, value is what you get” – Warren Buffett
Most people think that Warren Buffett, the most well-known investor of all time, buys and holds “cheap” companies – companies that are undervalued in the market, in terms of price, and that this is his investing philosophy.
But that isn’t true. Buffett’s investing philosophy is less about buying “cheap” companies and more about finding companies with a strong competitive advantage, excellent management, and a track record of generating cash flow, and holding them for the long term. And he’ll buy even if the company is considered “expensive” in the market.
Take his investment in See’s Candy in 1972. Buffett paid $25 million – three times what the company was valued at – to acquire the company back then. He did this after assessing See’s Candy and discovering that it was a high-quality business with a sizeable moat with the potential to grow its profits at a low cost. Turns out, his assessment was right. His investment in See’s Candy grew by 8000%, or $2 billion in 50 years.
When it comes to investing, it isn’t just about paying the lowest price possible for an asset but also understanding what value you’re getting for your money and this principle extends beyond investing to your personal finance decisions as well.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” – Benjamin Graham, The Intelligent Investor
The father of value investing, Benjamin Graham, emphasises the importance of emotional discipline when investing. In his book, The Intelligent Investor, he posits that when investors are overly optimistic, it may be time to sell, and when investors are overly pessimistic, it may be time to buy.
His wisdom does make a lot of sense. When a company is doing well, bullish investors who are driven by greed and the fear of missing out rush to buy its stock in the hopes of making a quick buck. This pushes the stock’s price higher and beyond the intrinsic value of the stock. Because the stock is now overvalued, there’s a higher chance that it could leave you with losses when things go south.
Instead of giving into the market’s exuberance and buying based on emotion, Graham says the key to being a successful value investor is having a margin of safety.
A margin of safety involves buying stocks that are trading at a discount to their intrinsic value, so that even if the company performs poorly, your downside risk is limited. In other words, if things don’t go as planned, you won’t be completely wiped out when you invest with a margin of safety.
Diversification also helps reduce the risk of your bets being wrong.
Even the best investors, including those on this list, can make mistakes. By diversifying, you mitigate the impact of any individual investment that doesn’t work out.
This concept of margin of error can be expanded to our daily lives too. If you spend significantly less than you earn, your savings acts as a margin of safety in the event you lose your job and your income.
By investing and living with a margin of safety in mind, you can minimize damages to your financial well-being and live to try again another day.
“In investing, what is comfortable is rarely profitable.” – Peter Lynch, One Up On Wall Street
The best investment opportunities often come with some level of risk or uncertainty. Prominent mutual fund manager, Peter Lynch, believes in taking calculated risks and that to achieve outsized returns, you need to be willing to step outside of your comfort zone.
Of course, this doesn’t mean that you should completely disregard your risk appetite and invest all your money into the stock market today. However, if you’re keeping all your savings in a bank account and have not started investing out of fear, you are missing out on the ability to compound your wealth quicker.
This principle also applies to taking chances in your career. If you stay at a low-paying job and resist upskilling yourself because you are comfortable where you are, you risk losing out on the potential to increase your earning power so that you can build a better financial future for yourself.
“Pain plus reflection equals progress.” – Ray Dalio, Principles
Ray Dalio, founder of Bridgewater Associates hedge fund, is known for his “Principles” philosophy. One of the key tenets of “Principles” is the willingness to embrace failure.
Many of us try to avoid the pain of failure in our lives but failure is an inevitable part of life, and sometimes our investing journey. According to Dalio, we should look at failure as an essential part of our learning process and by embracing our mistakes and learning from them, we can make progress and grow as investors.
When we experience pain or failure, we should take the time to reflect on what went wrong and learn from our mistakes.
“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks, The Most Important Thing
As much as we may not want to admit it, money makes us emotional. We feel elated when we see money coming into our bank accounts, and we feel dejected when we lose money. In investing, emotions are the primary driver of investment mistakes, according to co-founder of Oaktree Capital Management, Howard Marks.
It’s easy to get caught up in the news, and the narratives we tell ourselves when investing. So, it’s essential to first be cognisant of our instinctive reactions to market news. Having self-awareness is the first step to being a better investor, beyond that, you need to have a plan for your investments.
When making an investment decision, it’s important to consider the potential risks and rewards and to evaluate whether the investment aligns with your overall investment strategy. By taking a disciplined and systematic approach to investing, you can minimize the risk of making impulsive or emotional investment decisions that you may regret later on.
We can learn so much from the investing greats
After studying the great investors of our time, we noticed that there are common traits that many of them share.
They have the ability to keep learning and adapting. They take in new information and weigh it carefully against their investing strategies before making a decision. And, when they take risks and make mistakes, they continuously learn from them and try to do better.
If we’re able to emulate these traits, and apply them to not just our investment decisions but also our life decisions, we may be able to improve the odds that we’ll do better financially.
Content sponsored by the National Library Board
Over the years, Warren Buffett and Charlie Munger have attributed their success in investing to one thing – reading, and reading widely.
Buffett has said that he spent 80% of his workday reading and thinking because just like money, knowledge compounds.
If you’re inspired by Buffett to read more and read widely, you may want to check out the NLB Mobile app for a start.
You can access an extensive library of eBooks and audiobooks from the comforts of your phone.
Books like the ones mentioned in this article, along with other notable investing books such as The Little Book of Valuation by Aswath Damodaran, and financial mindset books such as Mind over Money by Claudia Hammond and books about personal finance such as Broke Millennial by Erin Lowry are some of the many titles you can find in NLB’s catalogue to help you learn to be a better investor.
The best part? All of this knowledge is available to you for free.
You can even pick up personal finance and investing courses through NLB eResource database. All you need is to login or create an NLB myLibrary account on NLB’s website or app.