Over the weekend I saw an article in which the author wrote a letter to her younger self, offering home buying advices that can only drawn from experiences. I find the article interesting. I thought about myself ten years ago. What have I learned over the years as an investor that I wish I knew then? What advices would I like to give my younger self?
Like wine, the knowledge about the stock market only gets better with time. As the market collectively doubted the old wisdom in the "new economy" era of the late 90s, the law of economics ultimately took over. As the old saying goes, the more it changes, the more it remains the same. The cumulative wisdom from the history and personal experiences can always help us deal better with Mr. Market, no matter what new tricks he pulls out of his hat.
There were many things that I wish I could have known earlier, and would remember at any time in the future, in terms of investing. Though there are only three advices that I'd like to give to my younger self, that would definitely make me a better investor, then or now.
- Don't buy on promises, buy on proven track records. A company's success is mostly driven by the quality of its management, not so much by its technology and its fancy new ideas. (Technology and new ideas help. But think of those companies that promised to change the way we live but were never heard of again.) Every company that Warren Buffett owned broke no new grounds and was mundane (like insurance), but its CEO was always someone that he could trust to make the right choice in good times or bad times.
- Don't believe you can outsmart the market, but do believe you can outlast the market. Investing is not like a game of chess, where the smart ones win. It is more like a marathon, where endurance counts. There are plenty of smart people in the game of investing. But they are each driven by a very different motive, and attach a different emotion to it. Mutual fund managers are driven by quarterly performances. Short sellers are fixated on short-term price actions. Your goal is to achieve long-term above-average returns. Don't be emotional about the money you don't need now. Buy and hold. Ignore the crowd. Your homework and patience will return handsomely over time. If there is one thing you should learn from Warren Buffett's career, that is it.
- Always learn something from a failure. Failure in investing is costly. The only way to salvage something out of it is to learn something from it. Find out why you fail, if there is anything you could have done to avoid it. It is against human nature to admit a mistake. But successful investing is pretty much against human natures (that is why Warren Buffett is so successful, he is no ordinary human being. Not so much in his intelligence, but in his personality and wisdom).