Welcome to 21 Great Investment Quotes by Dr. Shane Oliver as March 2024.
Investing can be scary and confusing at times. But the basic principles of
successful investing are timeless and quotes from experts help illuminate
these. This note revisits a series on insightful quotes on investing I first
started a decade ago.
“How many millionaires do you know who have become wealthy by
investing in savings accounts?” Robert G Allen, investment author
Cash and bank deposits are low risk and fine for near term spending
requirements and emergency funds, but they won’t build wealth over
long periods of time. The chart below shows the value of $1 invested in
various assets since 1900. Despite periodic setbacks (see the arrows)
shares and other growth assets like property (not shown) provide much
higher returns over the long term than cash and bank deposits
“The aim is to make money, not to be right.” Ned Davis, investment
analyst
There is a big difference between the two. But many let their blind faith in
a strongly held view (e.g. “there is too much debt”, “aging populations will
destroy share returns”, “global oil production will soon peak”, “the IT
revolution means this time it’s different”) drive their decisions. They could
be right at some point but end up losing a lot of money in the interim.
“Much success can be attributed to inactivity. Most investors cannot
resist the temptation to constantly buy and sell.” Warren Buffet,
investor, chair & CEO of Berkshire Hathaway
Unless you really want to put a lot of time into trading, it’s advisable to
only invest in assets you would be comfortable holding for the long term.
This is less risky than constantly tinkering in response to predictions of
short-term changes in value and all the noise around investment markets.
“Investing should be like watching paint dry or watching grass grow. If
you want excitement…go to Las Vegas.” Paul Samuelson, economist
Investing is not the same as gambling and requires a much longer time
frame to payoff.
“Successful investing professionals are disciplined and consistent and
they think a great deal about what they do and how they do it.”
Benjamin Graham, investment author, “father of value investing”
Having a disciplined investment process and consistently applying it is
critical for investors if they wish to actively manage their investments
successfully in the short term.
“Don’t look for the needle in the haystack, just buy the haystack!” John
C Bogle, founder of Vanguard
The key insight here is that trying to beat the market by stock picking can
be hard and so if you want to grow wealth over time the key is to get a
broad exposure to the market and letting compound interest do its job.
“Remember that the stock market is a manic depressive.” Warren
Buffett
Rules of logic often don’t apply in investment markets. The well-known
advocate of value investing, Benjamin Graham, coined the term “Mr
Market” (in 1949) as a metaphor to explain the share market. Sometimes
Mr Market sets sensible share prices based on economic and business
developments. At other times he is emotionally unstable, swinging from
euphoria to pessimism. But not only is Mr. Market highly unstable, he is
also highly seductive – sucking investors in during the good times with
dreams of riches and spitting them out during the bad times when all
hope seems lost. Investors need to recognize this.
“Markets can remain irrational longer than you can remain solvent.”
John Maynard Keynes, economist
A key is to respect the market and recognize that it can be fickle rather
than try and take big bets that can send you bust if you get the timing
wrong. For example, by heavily selling shares short if you think a crash is
about to happen or gearing in too heavily via margin debt when the
market is strong. Such approaches can often undo investors and send
them bust as they are too dependent on accurately timing the market.
This is one of the best characterisations of how the investment cycle
unfolds. It follows that the point of maximum opportunity in terms of
prospective return is around the time most investors are pessimistic and
bearish and the point of maximum risk is when most investors are
euphoric and bullish, but unfortunately many don’t realise this because it
involves going against the crowd.
History tells us that that there are good times and bad and assuming that
either will persist indefinitely is a big mistake. Whenever you hear talk of
“new paradigms”, “new eras”, “new normals” or “new whatevers” it’s
usually getting time for the cycle to go in the other direction.
No two cycles are the same, but they do have common elements which
make them rhyme. In upswings investment markets are pushed to the
point where the relevant asset has become overvalued, over loved (in
that everyone is on board) and over bought and vice versa in downturns.
Recognising these common elements is necessary if you are to get a
handle on cyclical swings in investment markets.
This doesn’t apply to everything (e.g. if it is obviously sunny outside
according to the usual definition, then it is!), but investing can be
perverse. When everyone is saying “it’s obvious that the recession will
continue” or “it’s impossible to see a recession as things are obviously
good” then maybe the crowd is already on board and the cycle will soon
turn.
This is another great quote on contrarian investing that follows on from
those above.
Shares have long been observed to have a seasonal pattern that sees
strength from November through to May and then relative weakness
through to around October. This can be seen in seasonal indexes for US
and Australian shares in the next chart. (St Leger’s Day in terms of the UK
horse race on the second Saturday in September may be a bit early, but
not to worry!)
The reasons vary and relate to tax loss selling associated with a
September tax year end for US mutual funds, a wind down in new equity
raisings around December/January, New Year cheer and the investment
of bonuses, but may have its origins in crop cycles. The point is that
buying in May, might not be the best time, nor selling in September or
October.
“To be an investor you must be a believer in a better tomorrow.”
Benjamin Graham
This is a pre-requisite. If you don’t believe the bank will look after your
term deposits, that most borrowers will pay back their debts, that most
companies will see rising profits over time, that properties will earn rents
etc then there is no point investing. This is flippant but true – to be a
successful investor you need a favourable view of the future.
“More money has been lost trying to anticipate and protect from
corrections than actually in them.” Peter Lynch, investor, fund manager
Preserving capital is important, but this can be taken too far and often is
in the aftermath of bad times with the result that investors end up so
focused on trying to avoid capital losses in share markets that they miss
the returns they offer.
“I have observed that not the man who hopes when others despair, but
the man who despairs when others hope, is admired by a large class of
persons as a sage.” J.S. Mill, economist
It invariably seems that higher regard is had for pessimists predicting
disaster than for optimists seeing better times. As the US economist JK
Galbraith once observed “we all agree that pessimism is a mark of a
superior intellect.” And we all know that bad news sells. There may be a
neurological reason for this as the human brain evolved in the Pleistocene
era when the key was to dodge woolly mammoths and sabre tooth tigers,
so it has been hard wired to be always on guard and so naturally attracted
to doom sayers. But for investors, giving too much attention to pessimists
doesn’t pay over the long term.
“There is nothing riskier than the widespread perception that there is no
risk.” Howard Marks (I think), investor, co-founder of Oaktree Capital
Many like to measure risk by looking at measures of volatility, but the
riskiest time in markets is invariably when the common view is that there
is no risk for it’s often around this point that everyone who wants to
invest has already done so leaving the market vulnerable to bad news.
“It’s not what you own that will send you bust but what you owe.” Anon
Always make sure that you don’t take on so much debt that it may force
you to sell all your investments and potentially send you bust, just at the
time you should be buying.
“The investor’s chief problem and even his worst enemy is likely to be
himself.” Benjamin Graham
This may sound perverse as surely it is events which drive investment
markets down and destroy value. But the trouble is that events and bear
markets are normal. Rather what causes the greatest damage is our
reaction to events – selling after markets have already plunged and only
buying back in after euphoria has returned. Smart investors have an
awareness of their psychological weaknesses and their tolerance for risk
and seem to manage them.
“You get recessions, you have stock market declines. If you don’t
understand that’s going to happen then you’re not ready, you won’t do
well in the markets.” Peter Lynch
If you can’t handle volatility associated with investment markets, then
either they are not for you or you should just take a long term approach
and leave it to someone else to manage and advise on the investment of
your funds.
Dr Shane Oliver
Head of Investment Strategy and Chief Economist, AMP
Important note: While every care has been taken in the preparation of this document, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM), AMP Limited ABN 49 079 354 519 nor any other member of the AMP Group (AMP) makes any representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance.
This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or
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