5 Great Quotes To Change Your Thinking On Investing For The Better

A great quote can probably teach you more about something than a lousy book. Here’re five great investing quotes that can change your thinking on investing for the better (they did for me).

On risk

“Risk is what’s left over when you think you’ve thought of everything.” – Carl Richards

I think it’s very important as an investor to diversify because there are always unknowns lurking in the background. And it’s the unknowns that can really kill because you’re not thinking of them and so, can’t prepare for them.

On the economy and investing

“One thing I want to emphasize is that, like any human being, we can discuss our view of the economy and the market. Fortunately for our clients, we don’t tend to operate based on the view. Our investment strategy is to invest bottom up, one stock at a time, based on price compared to value.” – Seth Klarman

We can have views on the economy or broad economic trends, but that does not mean we have to act on that when we invest. Economic trends and investing results can be miles apart.

A great example comes from the tweet above by investment manager Ben Carlson. In the 22 years ended 2013, China’s massive economic growth has sadly led investors on nothing but a road to ruin.

On having the right focus

““[There’s] an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the [dog watchers], big and small, seem to have their eye on the dog, and not the owner.” – Ralph Wagner

This is a great analogy for the stock market, with the dog owner being a business’s growth and the dog being the business’s stock price. While so much attention is paid to short-term stock price movements, what really matters is the long-run performance of the stock’s business.

On the power of negative knowledge

“In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.” – Erik Falkenstein

Knowing the mistakes to avoid in the stock market could be even more valuable than knowing what to buy. So, what are some of the mistakes that investors may want to avoid? Here are a few:

  1. Assume a blue chip stock is a safe investment just because it is a blue chip

Ship builder Cosco Corporation (Singapore) Limited (SGX: F83) was a blue chip stock way back in 10 January 2008 when it was part of the revamped Straits Times Index (SGX: ^STI). But sadly, Cosco’s shares have declined by a staggering 91% in total since. It’s worth noting that Cosco’s business results have been horrible, with its profit of S$303 million in 2008 becoming a loss of S$570 million in 2015. At the end of the day, it’s the business’s performance which matters, not a company’s blue chip status.

  1. Assume a stock is a bargain just because it has a low valuation

Commercial fishing outfit Pacific Andes Resources Development Ltd (SGX: P11) was valued at just 0.27 times its book value on 10 March 2009, the day when the Straits Times Index had reached a trough during the 2007-09 financial crisis. But despite Pacific Andes’ absurdly low valuation back then, its shares have plunged by a massive 71% since (the company’s shares have been suspended from trading as of November 2015) even as the Straits Times Index has nearly doubled.

On how long you should invest for

“Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” – Nick Murray

From 1 May 1992 to 12 January 2016, the Straits Times Index had made losses (a) 48% of the time for a 1-day holding period, (b) 45% of the time for a 1-year holding period, (c) 41% of the time for a 5-year holding period, and (d) 0% of the time for a 20-year holding period. There’s perhaps nothing more important in investing than how long an investor can stay invested for.

For more investing insights and important updates about the stock market, check out the Motley Fool's weekly investing newsletter Take Stock Singapore. This free newsletter can teach you how to grow your wealth in the years ahead, so do take a look here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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 doesn't own shares in any company mentioned.