Here are ten lessons for investors. Adapted from an article from Centrum‘s magazie – Money Compass.
- Be wary of complex investment strategies with fancy names that claim to be new and different. In stock market, the more things change, the more they stay the same.
- The only predictable thing about stocks, is their unpredictability. So if you want guarantees, do not invest in stocks!
- If you can not see the risk in a high returns strategy, you just haven’t looked hard enough. No pains, no gains – if you want higher return, there will be higer risk.
- Remember the fundamentals. The value of business has always been the ability to generate cash flows from its assets. Keep this in mind.
- Cheap companies are not always good bargains. They are cheap because of some reason.
- Good companies may not be good investments. So check if the price of a stock is largely based on the brand value.
- Numbers can lie! Studies are all probabilities and markets change over time. So don’t rely only on numbers or studies.
- Markets are more often right than wrong. They normaly value stocks right.
- There is no one best investment strategy that fits all investors. So know your risk profile and invest accordingly. Don’s lose sleep over your stocks.
- It pays to be lucky! In the short term (at least) luck can overwhelm analysis and skills.
Beating the market is neither easy nor painless. Human beings collect and process information and make their best judgments on what assets are worth. Not surprisingly, they make mistakes. The open question, though, is whether you can take advantage of these mistakes and do better than the average investor. You can but only if you do your homework, assess the weaknesses of your investment strategies and attempt to protect yourself against them. If you have a short time horizon, you will also need luck as an ally!