I subscribe to quora.com because I find there are interesting questions posed, frequently followed with wise and erudite answers. This one is probably one of the best.
The answers hit most of my hot buttons.
- Learn to distinguish price from value.
- Modern portfolio theory does not actually work.
- Academic ideas don’t always work in the real world.
- Successful investors share traits. Reading increases your awareness.
- Time is key variable
- Details are distracting
- A well-curated list of books to read.
There are some things I did not feel good about but I cannot claim to know everything that is available. One of my disagreement involves treating containers as investments. A 401(k) or an IRA or an RRSP are not investments. They are containers that investments live in. A second is to treat an ETF or an index fund as an investment. They are in some ways but you won’t learn much about investment going that way. They are techniques to manage investments, not the investments themselves.
The answers frequently refer to Warren Buffet and how he worked very hard to get to his present position. Having a plan and working it is important. Be sure to understand the plan before working it is useful advice too.
Consider this Buffett thought. “Risk is what happens when you don’t know what you are doing.” Learning is always difficult but necessary. There are no easy ways to wealth.
Buffet’s key ideas were addressed in a speech to Columbia University’s Business school in 1984. The Superinvestors of Graham and Doddsville. First among them is learn how to assess value. A useful skill in more situations than merely investing.
Once you understand value, then the key to financial growth becomes clear.
Buffett has pointed out that “Mr Market is bipolar.” The rest follows readily. When he is excited, sell to him. When he is depressed buy from him. You will notice how value remains a stable entity while price oscillates around it.
There will not always be a buying opportunity so patience is a necessity. Superinvestor Seth Klarman is a strong believer in that virtue. Everyone should adopt it. The best thing to do when there is nothing to do, is do nothing.
The Quora piece is quite long and if you follow up the reading material suggested you will be a while learning the basics. On the other hand you will be a year older this time next year if you do it or if you do not.
You will be wealthier if you do it.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.