What Can Einstein Teach Us About Investing?

Investing mistakes

Due to his brilliant and creative scientific mind, Albert Einstein has been personified as a symbol of intelligence. However, besides contributing so much to the scientific community, the life and teachings of Einstein do hold some incredibly useful insights on investing as well. Here goes!

The ultimate contrarian

Einstein spent a large part of his life working on his “General Theory of Relativity”. Having developed the theory within the first two decades of the 20th century, his work ended up revolutionizing the world of physics and is the source of many new inventions that followed in the century.

However, before his work was recognized, Einstein had been rejected multiple times by the scientific establishment and there were hardly any authoritative voices in science who really believed him. The enormous commitment he gave to his work and the amount of self-confidence he had made him the ultimate contrarian.

In investing, we too will face times when no one really agrees with us. But remember these sage words from Benjamin Graham:

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

If the time comes when everyone else is laughing at your investment idea or you see your investment decline in price constantly, question your reasoning instead of being influenced by the crowd.

“If you can’t explain it simply, you don’t understand it well enough”

The sub-headline immediately above is a wonderful test concocted by Einstein to check if someone truly understands what he or she is saying. It is also an important test for us to see if we are able to really understand a business we are analysing.

For example, explaining what a company such as Global Logistics Properties Ltd (SGX:MC0) does might be much simpler than trying to explain the intricacies behind a conglomerate such as Jardine Matheson Holdings Limited (SGX:J36). The former is mainly an owner of logistics facilities which leases space and logistics services to clients. The latter on the other hand, is a company with multiple investments and a complex cross-holding structure that might give you a headache when figuring out the details of each business.

The next time you analyse a company, try explaining to a friend, your investment thesis and what the company does. If you are able to do so using simple language, it likely means you have a good understanding of your investment. If not, you might need to put in more homework!

”Anyone who has never made a mistake has never tried anything new”

Lastly, do not be afraid to make mistakes. In investing, we will never get 100% of our picks right. However, if we are too fearful in making an investment, we will never get to enjoy the advantages of investing. Even the famous investor Peter Lynch agrees that you do not need to be right all the time to be good at investing. In his eyes, being right six out of ten times is already the mark of a great investor.

Foolish Summary

Einstein was never well-known for his investing acumen (that is, if he even invested in the financial markets at all). However, investors can still learn much from understanding the trials, tribulations, and triumphs in his extraordinary life.

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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 contributor Stanley Lim doesn't own any shares of companies mention above.