by Ben Carlson, A Wealth of Common Sense
Learning about investing from some of the all-time great investors can be both enlightening and confusing all at the same time. Enlightening because it always pays to stand on the shoulders of giants, but confusing because even the greatest investors disagree on the best ways to be successful in the markets.
An example from two of the most well-known and heavily quoted traders of all-time:
âI believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.â â Paul Tudor Jones
âOne of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world.â â Jesse Livermore
Great, so the best way to make big money is at the inflection points OR never try to call tops and bottoms. Got it. The thing is that there are tons of examples like this where certain strategies or opinions work well for some but not for others. It usually comes down to context and defining your time horizon, philosophy and appetite for risk.
Plus, investors would like to believe that thereâs a secret to investing if they can only figure out that elusive one-liner that will spell it out for them. Intelligent investors know that there is no secret to successful investing.
Here are a few more conflicting narratives in the world of finance that youâre bound to hear if you pay attention long enough:
Money makes the world go âround.
Money is the root of all evil.
Borrow debt when itâs available not when itâs needed.
Thereâs far too much debt in the system. This will not end well.
Pay attention to all economic and market data because everything matters.
Ignore the noise because nothing matters.
Cut your losers quickly but let your winners runs.
Rebalance by buying whatâs down and selling whatâs up.
The trend is your friend.
Donât chase performance.
Diversification is a sign of ignorance.
Diversification is a true sign of intelligence by admitting you have no idea whatâs going to happen in the future.
The stock market is not the economy.
Macro is the only thing that matters anymore.
Weâre bottomâs up fundamental investors.
We look at things from a top down, macro perspective.
Itâs impossible to beat the market on a consistent basis.
The markets are wildly inefficient.
Iâve never met a rich technician.
The best traders in the world use technical analysis.
Donât fight the Fed.
The Fed blows asset bubbles and canât be trusted.
You should be happy when a stock you bought goes down because you can buy more at lower prices.
Never average down in losing stocks.
Donât try to catch a falling knife.
Buy when thereâs blood in the streets.
Further Reading:
Why Investment Advice Can be so Confusing
Two Finance Phrases I Could Do Without
Words & Phrases That Should Be Banished From Finance
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Copyright © Ben Carlson, A Wealth of Common Sense
