When I was a kid, I had a coin collection. For all of two months, before I realized: hey, maybe I don’t really care about coins. Like at all. Collecting in general is not my scene. I mean: who cares about all this junk? I do collect one thing, though. Quotes. Even financial advising quotes, believe it or not.
Okay, maybe this is not so hard to believe given that this is a blog about financial advising.
The idea of a quote, I think, is to compress some key insight into a sentence or two. A few words which capture the entire gist of something.
That’s the point of a quote.
Quotes for financial advising beginners
Money not put to use doesn’t make any money, as insight at least as old as Shakespeare, and probably there’s a Biblical passage somewhere illustrating this fact of life.
Foul cankering rust the hidden treasure frets,
But gold that’s put to use more gold begets.
The power of investing! Gold begets gold.
The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.
And what does the ideal investor look like? Someone who never loses any money.
Rule one: never lose money. Rule two: never forget rule one.
What should you do with your money? Probably put it an index fund.
Index investing outperforms active management year after year.
The low-cost index fund is one of the most useful financial inventions in history. Boring but beautiful.
Moving money equals fees, fees equal less profit, which equals smaller returns. (This is why day traders are often met with such derision — well, at least one reason.) Pick a strategy and stick with it.
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
It’s easier to lose money than make money. Focus on not losing money and you’ll be way ahead of the pack.
In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.
Speaking of great moves, people like to punish themselves for what could have been — if only they’d invested in McDonald’s 50 years ago! To be consistent, they ought to reward themselves for the losses they avoided. Maybe if they read these financial advising quotes, they’d know better.
Sometimes your best investments are the ones you don’t make.
Other people’s experience
Why is expertise valuable? Because it’s transferable. Instead of going out and having my experiences, you can just ask me. And it’s almost as if you went through all the drudge work of learning this yourself.
You want to learn from experience, but you want to learn from other people’s experience when you can.
Investing money is easy. Investing in yourself is harder. But it has better returns.
An investment in knowledge pays the best interest.
If you look at the stock price of a company, you will know its price. But you won’t know its value. What’s the difference? Price is what you pay, value is the utility you get out of it.
Google might be free, but I get a hell of a lot of value out if it.
Which leads to the idea of value investing: buy companies with great value at a fair price. (But it’s best to buy at a better than fair price.)
The stock market is filled with individuals who know the price of everything, but the value of nothing.
I think you have to learn that there’s a company behind every stock and there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.
And, remember, some of the best returns are from the most prosaic stuff. Stuff like toilets.
Politicians and leaders worldwide don’t like to be associated with toilets, even state-of-the-art toilets. This sanitation stigma distorts international and national development agendas.
–Chairman of the UN Secretary-General’s Advisory Board on Water and Sanitation
The Joy of It
Most people have no idea why they’re making money. They do it because everyone
else does it. Inertia.
A majority of life’s errors are caused by forgetting what one is really trying to do.
But at some point in your development, making money becomes an intrinsic
good. It’s just damn fun. Who cares what you can buy?
There is more satisfaction in rational saving than in irrational spending.
–P. T. Barnum
At a certain point, money is meaningless. It ceases to be the goal. The game is what counts.
Who knows the most about risk?
Seek advice on risk from the wealthy who still take risks, not friends who dare nothing more than a football bet.
–J. Paul Getty
Except I have to caution you: the biggest risk takers are often those coming off
a lucky streak, and regression to the mean will not be kind to them.
But there are no returns without risk. No free lunches.
The safe way to double your money is to fold it over once and put it in your pocket.
Money often costs too much.
–Ralph Waldo Emerson
But maybe with enough money you could do something about the weather.
Money is the opposite of the weather. Nobody talks about it, but everybody does something about it.
In an up market, everything seems like a good idea. Dart-throwing chimps will make money.
In a strong enough wind, even turkeys can fly.
In a strong wind, people can get carried away. Carried away with ideas that have no merit.
While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.
–Benjamin Graham, The Intelligent Investor
Which means that good times can mask structural issues.
You only find out who is swimming naked when the tide goes out.
Caution! In the space of all ideas, theories, and what-have-you, most have no merit.
Most haystacks do not have even a needle.
And lots of ideas that look great are just noise:
What markets do day-to-day is overwhelmingly driven by random chance. Ascribing explanations to short-term moves is like trying to explain lottery numbers.
How do you know when someone has an idea that works, and they aren’t just lucky? Is experience enough?
How much experience a money manager has doesn’t tell you much. You can underperform the market for an entire career. And many have.
What about via intuition?
Today, safe flight inside clouds is possible using gyroscopic instruments that report the airplane’s orientation without being misled by centrifugal effects. But the pilot’s spatial intuition is still active, and often contradicts the instruments. Pilots are explicitly, emphatically trained to trust the instruments and ignore intuition—precisely the opposite of the Star Wars advice—and those who fail to do so often perish.
–Gary Drescher, Good and Real
How do you know, then?
In life as in poker, the occasional coup does not necessarily demonstrate skill and superlative performance is not the ability to eliminate chance, but the capacity to deliver good outcomes over and over again. That is how we know Warren Buffett is a skilled investor and Johnny Chan a skilled poker player.
Skilled like Warren Buffet? What does that even mean? Why do I have all these Buffet line on a page of financial advising quotes?
In the early 1970’s it cost $7 to buy a share in Warren Buffett’s company, and that same share is worth $4,900 today… That makes Buffett a wonderful investor. What makes him the greatest investor of all time is that during a certain period when he thought stocks were grossly overpriced, he sold everything and returned all the money to his partners at a sizable profit to them. The voluntary returning of money that others would gladly pay you to continue to manage is, in my experience, unique in the history of finance.
–Peter Lynch, One Up on Wall Street
So listen to Buffet, and who else?
The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn’t — his are much bigger.
And a page on financial advising quotes would not be complete without a final cautionary note. Sometimes picking up a penny is a waste of time, even if, unlike me, you’re a coin collector.
A penny saved is only a penny.