Market Overview

10 Time-Tested Investing Guidelines From the World’s Greatest Financial Legends

Are you an “investor” or a “speculator?

In today’s market, the majority of investors are simply chasing performance. However, why would you NOT expect this to happen when financial advisers, the mainstream media, and Wall Street continually press the idea that investors “must beat” some random benchmark index from one year to the next?

But this defines the difference between being a or an

Graham and Carret

If you were playing a hand of poker and were dealt a would you push all your chips to the center of the table?

Of course not.

The reason is you intuitively understand the other factors Even a cursory understanding of the game of poker suggests other players at the table are probably holding better hands, which will rapidly reduce your wealth.

More importantly, just like a game of poker, as individuals buying a few company shares, we have ZERO control over how that company manages its finances, makes decisions, or conducts its business.

As such, we are on an unknowable future outcome with only a basic understanding of the risks involved.

Therefore, as individuals, we are “speculators” in the financial markets, and as such, we must focus on the management of the risks to allow us to to

Chasing markets is the purest form of speculation. It is simply a bet on prices going higher rather than determining if the price being paid for those assets is selling at a discount to fair value.

Benjamin Graham and David Dodd attempted a precise definition of investing and speculation in their seminal work (1934).

There is also an essential passage in Graham’s

Indeed, in today’s world of chasing markets from one year to the next, the meaning of being an investor has been lost. However, the following ten guidelines from legends of our time will hopefully get you back on track and turn you from being a speculator to a successful investor.

1) Jeffrey Gundlach, DoubleLine

This is a common theme that you will see throughout this post. Great investors focus on “ because is not a function of how much money you will make but how much you will lose when you are wrong.

As a speculator, you can only play if you have capital. Be greedy when others are fearful and fearful when others are greedy. One of the best times to invest is when uncertainty and fear are the highest.

2) Ray Dalio, Bridgewater Associates

Nothing good or bad goes on forever. The mistake that investors repeatedly make is thinking, The reality is that it will change despite whatever mainstream narrative is permeating headlines. The rule that never changes is that

Wall Street wants you to be fully invested because that is how they generate fees. However, as an investor, it is crucially important to remember that

Speculators don’t care about value. Investors do.

3) Seth Klarman, Baupost

The most significant risk in investing is investor behavior driven by cognitive biases. dominate the investment cycle of investors, ultimately leading to

4) Jeremy Grantham, GMO

Successful investors avoid at all costs, even if it means underperforming in the short termThe reason is that while the media and Wall Street have you focused on chasing market returns in the short term, ultimately, the excess built into your portfolio will lead to abysmal long-term returns. Like Wyle E. Coyote, chasing financial markets will eventually lead you over the cliff’s edge.

5) Jesse Livermore, Speculator

Allowing emotions to rule your investment strategy is, and always has been, a recipe for disaster. All great investors follow a strict discipline, process, and risk management diet. The emotional mistakes show up in the returns of individual portfolios over time.

Summary Returns Table

6) Howard Marks, Oaktree Capital Management

As with Ray Dalio, realizing nothing lasts forever is critical to long-term investing. To one must first Understanding that all things are cyclical suggests that investments become more prone to declines after long price increases.S&P 500 Valuations and Cycles

7) James Montier, GMO

is when an asset sells for less than its intrinsic value. “Cheap” is not a low price per share. When a stock has a very low price, it is usually priced there for a reason. However, a very high-priced stock CAN be cheap. Price per share is only part of the valuation determination, not the measure of value itself.

8) George Soros, Soros Capital Management

Regarding risk management, being right and making money is great when markets are rising. However, rising markets tend to mask investment risk that is quickly revealed during market declines. If you fail to manage the risk in your portfolio and give up all of your previous gains and then some, you lose the investment game.

9) Jason Zweig, Wall Street Journal

The chart below shows the 3-year average of annual inflation-adjusted returns of the S&P 500 to 1900. The power of regression is seen. Historically, when returns exceeded 10%, it was not long before they fell to 10% below the long-term mean. Those reversions were devastating to investor’s capital.

Reversion To The Mean-3-Year Avg Returns

10) Howard Marks, Oaktree Capital Management

The biggest driver of long-term investment returns is the minimization of psychological investment mistakes.

Baron Rothschild once said, This means that when investors are you want to be the one they sell to at deeply discounted prices. Howard Marks expressed the same sentiment:

Conclusion

As an investor, it is simply your job to step away from your “emotions” and look objectively at the market around you. Is it currently dominated by “greed” or “fear?”

Your long-term returns will depend significantly on how you answer that question and manage the inherent risk.

– Benjamin Graham

As I stated at the beginning of this message, is ineffective in managing your money. However, as you will note, every great investor throughout history has had one core philosophy in common: the management of the inherent risk of investing to conserve and preserve investment capital.

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