Nick Murray delivers the timeless “simple truths” of investing that never change regardless of where things stand with the markets. Some of the points he makes are really true at all times and at all places. Here are a few selected ones –
“Wealth is freedom.” Financial Freedom should be the primary goal of everyone — to have enough screw you money to be able to do whatever you want. Becoming wealthy is simple, but not easy. Why is it not easy? — Most investors fail because they don’t stick it out “no matter what is happening in the markets and the world”. They don’t have the discipline to look beyond the bad news, good news, etc. to see the potential of equity growth. Investing also requires both the right amount of time and money to be successful.
Most people misunderstand risk. They think volatility is risk. Volatility is a short-term concept that passes with time. It’s nothing but tiny moments of opportunities for anyone focused on the long term. Risk = permanent loss and/or outliving your money. The real risk is loss of purchasing power.
Eight Great Mistakes:
1. Over diversification – you’re a collector, not an investor.
2. Under diversification – narrows a portfolio down to “what’s working” which eventually will stop working at some point too. Can you handle a portfolio that stops working from time to time? Most can’t. You can get wealthy by under diversifying, but can you stay wealthy? Most companies and stocks eventually fade off into the sunset.
3. Euphoria – when you stop seeing risk. How do investors see risk? As markets rise, investors think the risk of it falling again decreases. As markets fall, investors think risk of it falling further rises. When investors forget markets can fall, and only focus on missing out on returns, they’re euphoric.
4. Panic – rationalized reason to make a change when it’s really about fear. “It’s perfectly ok to feel the fear. But that it’s never, never ok to act on the fear.”
5. Speculating, not investing, and not knowing the difference – speculation is the hope that a fad, trend, or cycle continues. Investing is recognizing value. “Price and value are always inversely correlated.” “If you’re buying anything because it beat everything else around for the last four or five years, a) you’re speculating on the continuation of a price trend, not investing in intrinsic value, and b) you are about to get your head handed to you.”
6. Investing for yield instead of total return
7. Let cost basis make investment decisions – Refuse to sell to avoid taxes, or refuse to sell to avoid losses. “Your investments don’t know what you paid for them, and wouldn’t act any differently if they did. Forget your cost; it’s yesterday’s news.”
8. Leverage – Leverage can work, but…leverage used wrong magnifies mistakes.
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