We always have idols in sports and movies, so why not in investing?
Below are the ones that had the most impact on my investment process and psychology – with few details on why I admire them and some of their quotes.
1) Benjamin Graham – For introducing the important concepts of intrinsic value, margin of safety and, most importantly, Mr. Market, through his seminal Works, "Security Analysis" and "The Intelligent Investor." Also for highlighting how human psychology plays a big part in investor returns.
Quotes:
The investor's chief problem — and even his worst enemy — is likely to be himself.
If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.
Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which they certainly should refrain from buying and probably would be wise to sell.
The risk of paying too high a price for good-quality stocks — while a real one — is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. The purchasers view the current good earnings as equivalent to "earning power" and assume that prosperity is synonymous with safety.
Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it — even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Achieving satisfactory investment results is easier than most people realize; achieving superior results is harder than it looks.
2) Philip A Fisher – For stressing the importance of fundamental legwork that needs to be done by an investor (much of it applies to individual investors too), his 15 points to look for and his when-to-sell concepts shared in "Common Stocks and Uncommon Profits."
Quotes:
The stock market is filled with individuals who know the price of everything, but the value of nothing.
I don't want a lot of good investments; I want a few outstanding ones. If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.
More money has probably been lost by investors holding a stock they really did not want until they could "at least come out even" than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous.
A company might be an extremely efficient manufacturer or an inventor might have a product with breathtaking possibilities, but this was never enough for a healthy business. Unless that business contained people capable of convincing others as to the worth of their product, such a business would never really control its own destiny.
3) Warren Buffett– For sharing his wisdom through shareholders letters and concepts like, such as how you need to pay up for quality companies sometimes, concentrate on operational results and moats of companies (which will take care of the stock returns themselves over the long term), and most of all how to be a better capital allocator.
Don't worry – I'm not going to list the same Buffett quotes that we hear 10 times every day. Below are some less common ones.
Quotes:
The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.
Risk comes from not knowing what you're doing.
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
In the business world, the rearview mirror is always clearer than the windshield
4) Peter Lynch – For teaching us that not everyone needs an MBA and Brooks Brothers Suits to make it successful in investing, for introducing the concepts of how to look for strong companies that you come across in your everyday Life, how malls/intersections of America can be a source of wealth if you catch strong retail or franchise companies in their early stages before Wall Street catches on, and all the other "keep it simple" points he shared in "One up on Wall Street."
Quotes:
If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored. Never invest in any idea you can't illustrate with a crayon.
There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating.
Time is on your side when you own shares of superior companies.
When people discover they are no good at baseball or hockey, they put away their bats and their skates and they take up amateur golf or stamp collecting or gardening. But when people discover they are no good at picking stocks, they are likely to continue to do it anyway.
As I look back on it now, it's obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics. Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage. If stock picking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesn't work that way. All the math you need in the stock market you get in the fourth grade.
All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out.
Getting the story on a company is a lot easier if you understand the basic business. That's why I'd rather invest in panty hose than in communication satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, "any idiot could run this joint," that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it.
5) Seth Klarman – For teaching us not to push the risks into the back seat and considering future returns alone when making an investment, not being afraid to be in big cash positions, and waiting for opportunity when the market is being swept away in overvaluations and over optimism. Last but not least, for giving us that sweet sweet book called "Margin of Safety."
Quotes:
Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgement, they respond to market forces not with blind emotion but with calculated reason. Successful investors, for example, demonstrate caution in frothy markets and steadfast conviction in panicky ones. Indeed, the very way an investor views the market and its price fluctuations is a key factor in his or her ultimate investment success or failure.[url=http://www.quoteswise.com/seth-klarman-quotes.html][/url]
Financial market innovations are good for Wall Street but bad for clients.
Investors must try to understand the institutional investment mentality for two reasons. First institutions dominate financial market trading; investors who are ignorant of institutional behavior are likely to be periodically trampled. Second, ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding. Investing without understanding the behavior of institutional investors is like driving in a foreign land without a map. You may eventually get where you are going, but the trip will certainly take longer, and you risk getting lost along the way.
Value investing is simple to understand but difficult to implement. Value investors are not super sophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience and judgement. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgement to know when it is time to swing.
Investing is the intersection of economics and psychology.
Markets are inefficient because of human nature — innate, deep-rooted and permanent. People don't consciously choose to invest with emotion — they simply can't help it.
Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
Below are the ones that had the most impact on my investment process and psychology – with few details on why I admire them and some of their quotes.
1) Benjamin Graham – For introducing the important concepts of intrinsic value, margin of safety and, most importantly, Mr. Market, through his seminal Works, "Security Analysis" and "The Intelligent Investor." Also for highlighting how human psychology plays a big part in investor returns.
Quotes:
The investor's chief problem — and even his worst enemy — is likely to be himself.
If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.
Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which they certainly should refrain from buying and probably would be wise to sell.
The risk of paying too high a price for good-quality stocks — while a real one — is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. The purchasers view the current good earnings as equivalent to "earning power" and assume that prosperity is synonymous with safety.
Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it — even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Achieving satisfactory investment results is easier than most people realize; achieving superior results is harder than it looks.
2) Philip A Fisher – For stressing the importance of fundamental legwork that needs to be done by an investor (much of it applies to individual investors too), his 15 points to look for and his when-to-sell concepts shared in "Common Stocks and Uncommon Profits."
Quotes:
The stock market is filled with individuals who know the price of everything, but the value of nothing.
I don't want a lot of good investments; I want a few outstanding ones. If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.
More money has probably been lost by investors holding a stock they really did not want until they could "at least come out even" than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous.
A company might be an extremely efficient manufacturer or an inventor might have a product with breathtaking possibilities, but this was never enough for a healthy business. Unless that business contained people capable of convincing others as to the worth of their product, such a business would never really control its own destiny.
3) Warren Buffett– For sharing his wisdom through shareholders letters and concepts like, such as how you need to pay up for quality companies sometimes, concentrate on operational results and moats of companies (which will take care of the stock returns themselves over the long term), and most of all how to be a better capital allocator.
Don't worry – I'm not going to list the same Buffett quotes that we hear 10 times every day. Below are some less common ones.
Quotes:
The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.
Risk comes from not knowing what you're doing.
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
In the business world, the rearview mirror is always clearer than the windshield
4) Peter Lynch – For teaching us that not everyone needs an MBA and Brooks Brothers Suits to make it successful in investing, for introducing the concepts of how to look for strong companies that you come across in your everyday Life, how malls/intersections of America can be a source of wealth if you catch strong retail or franchise companies in their early stages before Wall Street catches on, and all the other "keep it simple" points he shared in "One up on Wall Street."
Quotes:
If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won't get bored. Never invest in any idea you can't illustrate with a crayon.
There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or worse, to buy more of it when the fundamentals are deteriorating.
Time is on your side when you own shares of superior companies.
When people discover they are no good at baseball or hockey, they put away their bats and their skates and they take up amateur golf or stamp collecting or gardening. But when people discover they are no good at picking stocks, they are likely to continue to do it anyway.
As I look back on it now, it's obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics. Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage. If stock picking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesn't work that way. All the math you need in the stock market you get in the fourth grade.
All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out.
Getting the story on a company is a lot easier if you understand the basic business. That's why I'd rather invest in panty hose than in communication satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, "any idiot could run this joint," that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it.
5) Seth Klarman – For teaching us not to push the risks into the back seat and considering future returns alone when making an investment, not being afraid to be in big cash positions, and waiting for opportunity when the market is being swept away in overvaluations and over optimism. Last but not least, for giving us that sweet sweet book called "Margin of Safety."
Quotes:
Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgement, they respond to market forces not with blind emotion but with calculated reason. Successful investors, for example, demonstrate caution in frothy markets and steadfast conviction in panicky ones. Indeed, the very way an investor views the market and its price fluctuations is a key factor in his or her ultimate investment success or failure.[url=http://www.quoteswise.com/seth-klarman-quotes.html][/url]
Financial market innovations are good for Wall Street but bad for clients.
Investors must try to understand the institutional investment mentality for two reasons. First institutions dominate financial market trading; investors who are ignorant of institutional behavior are likely to be periodically trampled. Second, ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding. Investing without understanding the behavior of institutional investors is like driving in a foreign land without a map. You may eventually get where you are going, but the trip will certainly take longer, and you risk getting lost along the way.
Value investing is simple to understand but difficult to implement. Value investors are not super sophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience and judgement. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgement to know when it is time to swing.
Investing is the intersection of economics and psychology.
Markets are inefficient because of human nature — innate, deep-rooted and permanent. People don't consciously choose to invest with emotion — they simply can't help it.
Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
