Warren Buffett is one of the most widely-followed investors around the world. His track record has been exemplary, but I think there’s another huge reason why he attracts such a large following: His wit. He is an investor that can somehow link investing to a topic as unrelated as sex (yes, of the reproduction kind). Such inimitable literary creativity has resulted in Buffett’s wise quips about investing being constantly repeated. But that can get kind of boring for some. So, to help plug that gap, here are some lesser-known – but still extremely good – investing quotes that can…
Warren Buffett is one of the most widely-followed investors around the world. His track record has been exemplary, but I think there’s another huge reason why he attracts such a large following: His wit. He is an investor that can somehow link investing to a topic as unrelated as sex (yes, of the reproduction kind).
Such inimitable literary creativity has resulted in Buffett’s wise quips about investing being constantly repeated. But that can get kind of boring for some. So, to help plug that gap, here are some lesser-known – but still extremely good – investing quotes that can probably tell you most of what investing is all about.
1. “As many advisors have told us, your investment portfolio is like a bar of soap. The more you handle it, the smaller it gets” – William Smead
If you’ve happened to watch business news channels when they’re talking about the markets, the impression you might get (or at least that’s what I get) is that the only way you can make money in the share market is to be constantly dancing in and out of various classes of financial assets in order to catch every little jig up or trip down.
Thing is, that can’t be any further from the truth. Having patience in investing after the capital has been committed is a very important component of lowering risks and generating returns.
How can risk be lowered? Historically, the Straits Times Index (SGX: ^STI) has had a decades-long history of having dramatically lower odds of losing money the longer one stays invested in the market. In the American share market, such a phenomenon has stretched back to more than a century.
As for generating returns, staying invested maximises our odds of having the market reflect the value of the businesses we own. There are times when the share price of companies fail to reflect a growth in their businesses for extended periods of time, only to then spike up by a huge amount over a relatively short number of years.
Case in point: Raffles Medical Group (SGX: R01). Between March 1999 and November 2008, the healthcare operator’s earnings grew by 512% but yet, its share price stayed flat from end to end at basically S$0.56. Today, with its earnings up 1,532% since March 1999, its shares are 600% higher at S$3.92.
In conclusion, the lesser activity you have in your investment portfolio after having invested, the better your chances of success.
2. “You can be a successful investor without being a perpetual forecaster” – Dean Williams
People often confuse successful investing with successful forecasting of economic and stock market variables. They think that the former can’t happen without the latter – but again, that can’t be further from the truth.
I’ve tried not to use any of Buffett’s words here – but I couldn’t resist. This is straight from the horse’s mouth in the 1994 Berkshire Hathaway annual shareholder letter:
“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.
But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.”
Translation: Benjamin Graham and Buffett have done very well in investing without the slightest need of any macroeconomic forecasting. Instead, they focused on the true economic value of a business in relation to its share price.
3. “Life is really simple, but we insist on making it complicated” – Confucius
Confucius is a legendary Chinese philosopher who was born more than 2,500 years ago, long before the first share market ever came to existence. But, great life lessons often withstand the test of time and have much broader applications as well. It’s the case with Confucius’ quote, which likely referred to life in general but which is really useful for investing and finance too.
Complexity is sometimes needed to deal with innovations in the modern world. But the thing is, investing can be made simple and successful at the same time. For instance, Benjamin Graham’s investing strategy consisted of some simple rules like finding shares that were selling for less than their net current asset values. He reckoned that such cheap shares should do well statistically and so just bought a whole bunch of them. He wound up doing really well in his career as a hedge fund manager in the share market.
Investor Mohnish Pabrai also once bought an oil-tanker company called Frontline in 2003 that saw its share price tank (pun intended) following a collapse in oil prices and shipping rates.
Although other more ‘sophisticated’ investors might have tried to predict the future of oil prices and shipping rates, Pabrai simply looked up Frontline’s balance sheet and saw that the scrap metal value of Frontline’s fleet was worth more than the market capitalisation of the company at that time. According to my American colleague Morgan Housel, anyone who invested in Frontline back then could have made as much as 20 times their money in two years. “Simplicity at its finest”, as Morgan wrote.
4. “Everyone has the brainpower to make money in stocks. Not everyone has the stomach” – Peter Lynch
In investing, intelligence is not as important as one’s control over his or her own emotions.
One of the best examples of how intelligence does not automatically correlate with investment success is the investing track record of MENSA members (MENSA is an organisation made up of people with IQs belonging to the top 2% of the world’s population) in the USA for the 15 years ending 2001. In a time when the S&P 500 (an American share market index) grew almost 13% per year, MENSA’s investing club grew their portfolio by only a pitiful annual rate of 2.5%.
But that’s not all. Turns out, being smart enough to hold a Chartered Financial Analyst designation can’t do much for one’s investing returns either. I’ve friends who are either CFAs or who are in the process of getting one and let me tell you – it’s not easy at all. It takes years to obtain one, and the average pass rate is only around 40% for the exams.
Yet, in a 2010 study by finance researches Oguzhan Dincer (from Illinois State University), Russell Greogry-Allen (from Massey University), and Hany Shawky (from University at Albany), they can “find no difference in return attributable to MBA, CFA, or Experience.”
That’s not to say a professional qualification in finance (like the CFA) isn’t useful – in fact, the CFA course provides incredibly useful training for the finer aspects of investing and finance. Rather, it’s meant to highlight that intelligence and qualifications can often pale in significance to the control of one’s emotions; if a CFA holder can’t withstand the ups-and-downs of the market and sells at every sign of panic, there’s no way he or she can earn satisfactory returns over the long-term.
As it is, control over our emotions is a very important factor in explaining investing success.
Foolish Bottom Line
All told, here’s what’s really important about investing: 1) Inactivity after investing trumps activity; 2) we should invest knowing that the process of valuing a business is more important than forecasting interest rates, GDP growth, or what-not; 3) simple investing techniques can win; and 4) it’s not about the brain – it’s about your stomach.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Raffles Medical Group and Berkshire Hathaway.