Follow investment gurus to avoid investment mistakes.
When things seem unsettled, a trio of these savants
offer timeless advice you should heed.
Such words of wisdom are especially appropriate amid
current turbulent circumstances: a rocky market
that perhaps signals the end of a 30-year bull run, troubling overseas
developments, and the
ongoing fight in Congress.
On the other hand, the variables change, but crises
and problems always occur and always (at least
temporarily) affect markets.
Here’s some food for thought from three great
investors to help avoid investment mistakes:
Avoid market timing: Peter Lynch. He rose to fame
by successfully managing the Fidelity Magellan fund
from 1977 to 1990, racking up an eye-popping 29%
annual rate of return. Sadly, the average investor in his
fund during those 13 years earned a small fraction of
29% by jumping in and out of Magellan to try to
Lynch once summed up his dim view of market timing
this way: “Far more money has been lost by investors
preparing for corrections, or trying to anticipate
corrections, than has been lost in corrections
Another example of market timing’s weakness: The
Standard & Poor’s 500 from 1992 to 2012 registered a
nice 8.2% annual return. What kind of return did
investors earn if they missed the best 10, 30, 60 or 90
trading days during those two decades, which is about
2,500 trading days?
Investors who missed the best 10 S&P 500 days
earned half as much, 4.5% annually those who missed
the best 30 days realized zero the best 60 days,
negative 5.3% the best 90 days, a whopping minus
9.4%. In other words, stay at a party from start to finish
- don’t dart in and out if you don’t like the music or find
the conversation boring.
Don’t let your gut emotions steer investment
decisions: Benjamin Graham. Graham is considered
the father of value investing - he wrote a number of
classic books on security analysis in the 1930s and
1940s. Graham said: “Individuals who cannot master
their emotions are ill-suited to profit from the
The enemies of calm investing include greed, fear, the
tendency to chase the most recent hot thing and the to
crowd the exit door when something turns sour. Some
investors bail out when the market dips, and lose a
good chance to buy good stocks cheaply for the
inevitable recovery. And they buy expensive stocks
when the market rises, only to be crushed once it
drops. If you’re wondering how to avoid the having
emotions govern you, hire an investment advisor with a
solid non-market-timing driven approach.
Crises in markets come and go: Shelby M.C. Davis.
Human history is the history of crises and relative
periods of calm. That’s the observation of Davis, a
legendary mutual fund manager.
It’s no surprise that markets exhibit the same patterns
of exuberance, fear and everything in between. Every
crisis seems to have different origins, whether
stagflation or inflation, collapsing or soaring energy
prices, falling or climbing home prices. A wise investor
acknowledges that crises ebb and flow, and that the
best investment strategy adjusts to changes but avoids
As Davis puts it: “Crises are painful and difficult, but
they are also an inevitable part of any long-term
investor’s journey. Investors who bear this in mind may
be less likely to react emotionally, more likely to stay
the course, and be better positioned to benefit from the
long-term growth potential of stocks.”
Projected investment rates of return inevitably are
based upon past decades of data (although we always
say “the past is no guarantee of future performance”).
Here’s something to think about: By one estimate, the
S&P 500 from its 1926 inception through last month,
with reinvested dividends and adjusted for inflation,
had an annual return of 6.9%. Included in this span are
the 1929 crash, the Great Depression, the 2002 tech
wreck and the 2008 financial crisis, along with other
The lessons provided by these three investment sages
is that your own mistakes may be a bigger source of
your own poor return than economic and political
factors that move markets and are beyond your
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