The weird and wonderful world of investing in the stock markets
• Famous quotes answer some of the most pressing questions and undercut received wisdom
Q: Why is stock market investing so difficult? A: [Because] it mixes high stakes with strong emotions, intelligence with luck and long-term innovation with short-term trading. — Morgan Housel
Q: Why is luck so important when it comes to success? A: In much of life, doing things right over and over again is a sign of skill; expert musicians, for instance, rarely hit a wrong note. And the skill of one professional musician doesn’t make it harder for the others to be equally expert. But in the financial markets, where so many investors are highly skilled, their actions cancel each other out as they quickly bid up the prices of any bargains — paradoxically making luck the main factor that distinguishes one investor from another. — Peter Bernstein
Q: Why is the financial world full of noise and nonsense? A: The financial system’s incentive structure is set up so that as long as analysts sound smart and pretend they know why stock xyz is going up, they get rewarded.
This holds true for all the talking heads and “experts” except for those who actually trade real money. They either learn the game or get competed out. — Stanley Druckenmiller
Q: What else is wrong with
analysts? A: [They] do research on companies and then, no matter what they find, even if the company has burned to the ground, enthusiastically recommend that investors buy the stock. — Dave Barry
Q: Why is it so difficult for financial people to be plain spoken? A: It’s mission-critical to be plain spoken, whether you’re trying to be best-of-breed at outside-the-box thinking or simply incentivising colleagues to achieve a paradigm shift in core-performance value-adds. Leading-edge leveraging of your plain-English skill set will ensure that your actionable items synergise future-proof assets with your global-knowledge repository. — Bryan Garner
Q: How do you know when you’re right and when you’re just stubborn? A: When you are holding on to a position ask yourself: “is this business growing and making more money per share than it did a year ago, two years ago?” If you’re invested in a great business that continues to grow and earn more money, don’t let lulls in the stock price and boredom scare you out of it. — Peter Lynch
Q: Are dividends important? A: The Dow Jones industrial average excludes dividends — it is a capital index. It was initiated in 1896 at 40.94 and reached 9,181.43 by the end of 1998. But if dividends were included in the calculation it would have passed 652,230.87 by the end of 1998! — James Montier
Q: Is leverage a good idea? A: When you decide the time has come to invest, do so with conviction. Use leverage to your advantage — be prepared to borrow; consider the use of derivative instruments. You could be a hero of the next bull market, if only in your granny’s eyes. — Edmond Warner
Q: If there’s a seller for every buyer, how can there be a time when most people are in or out of the market? A. Public opinion in a speculative market is measured in dollars, not in population. One person controlling $1m has many times the weight of 500 people with $1,000 each. — Humphrey Neill
Q: Why do people find it so hard to do what they said they would do when the market crashes? A: “Everyone has a plan — until they get punched in the face.” — Mike Tyson
Q: Why bother with a plan? A: Because not having a plan explains why a lot of people do a lot of stupid things as they meander through life without discipline or focus — with nothing to measure performance against. — Craig Mee.
Q: Why not simply wait until a time of maximum bullishness to sell or bearishness to buy? A: Because: 1) we are unconsciously influenced by what is taking place. In boom times, the optimistic arguments are the easiest to accept; in a slump pessimism and discouragement are contagious; 2) people are gregarious and fearful of solitude. Instinctively, we follow the herd; 3) a crowd doesn’t reason, it follows its emotions and accepts without proof; 4) it takes us considerable time to shift our viewpoints. Once we have accepted a trend in one direction, we are not inclined to change our outlook until well after the trend has turned. — Humphrey Neill
Q: Is “buy and hold” the answer? A: “Buy and hold” is the second most misleading marketing slogan ever after the brilliant “rinse and repeat” message on every shampoo bottle.… If I could buy 1,000 shares that represented just 1/100,000th of ownership and I could believe that year after year I would still own 1/100,000th of that company and I would have at least some of that money returned to me through dividends, well then, I may be willing to buy and hold. — Mark Cuban
Q: How does our brain work against us? A: There’s any number of reasons: cognitive bias, confirmation bias, illusion of validity, overconfidence, loss aversion, selective cherrypicking of evidence, self-justification, shifting of blame, even false memories … the list goes on and on. And, being aware of them doesn’t help much either. — Kenneth L Fisher
Q: Is self-criticism important? A: If self-criticism alone made us better traders, we’d all be rich. — Richard Friesen Q: Can you be happy trading the markets? A: “Those only are happy who have their minds … on some object other than their own happiness … aiming thus at something else, they find happiness by the way. — John S Mill
Q: So, why are there so few traders over 50? A: It’s a matter of survival. If the markets are mostly a zero-sum game, then the winners stick around and the losers find other things to do with their lives. There’s no evading losses. — Jared Dillian
Q: Is self-doubt a problem? A: Neither nakedness, nor matted locks; neither applying mud, nor fasting, nor lying on the bare earth; neither besmearing oneself with soot, nor squatting on one’s heels can purify a man who has not got rid of his doubts. — The Dhammapada
Q: Why is money important, but experience invaluable? A: Everything you buy eventually becomes just something you own. With experience you’re getting new ways of thinking and all those things that become part of who you are. — David DiSalvo
Q: Is there any possibility of a financial apocalypse? A: We do know that the central banks can’t do much to help anymore if things turn sour, so it may be that at some point the whole central bank idea will collapse, monetary policy will stop working … people could lose trust in the system, in the monetary experiments that are being conducted. — Theo Kocken
PUBLIC OPINION IN A SPECULATIVE MARKET IS MEASURED IN DOLLARS, NOT IN POPULATION