25 Important Things to Remember As an Investor

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1. The intrinsic value of the stock market as a whole increases by about 1% every six weeks. That's what you'll get over the long term. Everything else is noise.

2. Several academic studies have shown that those who trade the most earn the lowest returns. Remember Pascal's wisdom: "All man's miseries derive from not being able to sit in a quiet room alone."

3. The single best three-year period to own stocks was during the Great Depression. Not far behind was the three year period starting in 2009, when the economy struggled in utter ruin. The biggest returns begin when most people think the biggest losses are inevitable.

4. Economist Alfred Cowles dug through forecasts a popular analyst who "had gained a reputation for successful forecasting" made in The Wall Street Journal in the early 1900s. Among 90 predictions made over a 30-year period, exactly 45 were right and 45 were wrong. This is more common than you think.

5. There is virtually no correlation between what the economy is doing and stock market returns. According to Vanguard, rainfall is actually a better predictor of future stock returns than GDP growth. (Both explain slightly more than nothing.)

6. The Financial Times recently wrote: "In 2008, the three most admired personalities in sport were probably Tiger Woods, Lance Armstrong, and Oscar Pistorius." Given the volume of recent insider trading charges, something similar could occur among the investing "greats."

7. There are no investment points awarded for difficulty or complexity. Simple stocks can make outstanding investments.

8. 90% of Warren Buffett's success can be explained by three factors: Patience, compound interest, and time.

9. All bubbles begin with a rational idea that gets taken to an irrational extreme. That's why so many people fall for them.

10. How long you stay invested for will likely be the single most important factor determining how well you do at investing.

11. According to Longboard Asset Management, from 1983 to 2007, 40% of stocks were unprofitable, 19% lost at least three-quarters of their value, 64% underperformed the market, and 25% were responsible for all the market's gains. Statistically, successful stock-picking is more about avoiding awful investments than finding good ones.

12. There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and a winning investment are two very different things.

13. In hindsight, everyone saw the financial crisis coming. In reality, it was a fringe view before mid-2007. The next crisis will be the same (they all work like that).

14. Management fees, transaction costs, and taxes are the bane of investment returns. Thankfully you can invest in commission-free low-cost index ETFs in a tax-protected Roth IRA through Vanguard.

15. You are under no obligation to read or watch financial news. If you do, you are under no obligation to take any of it seriously.

16. Investor Dean Williams once said, "Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same." We're looking at you, Wall Street analysts. 

17. When you think you have a great idea, go out of your way to talk with someone who disagrees with it. At worst, you continue to disagree with them. More often, you'll gain valuable perspective. Fight confirmation bias like the plague.

18. Daily market movements are driven by people with short investment horizons. Are you a long-term investor? Then nothing they do applies to you. Ignore it.

19. Someday we will look back at financial advisors who don't have a fiduciary duty as one of the most harmful oxymorons of all time. Always make sure you understand the incentives of the advisor sitting on the other side of the table.

20. Take the highest level the S&P 500 traded at in every decade going back to 1880. At some point during the subsequent 10 years, stocks fell at least 10% every single time, with an average decline of 39%. Market crashes are perfectly normal.

21. To paraphrase Motley Fool member TheDumbMoney, companies that have antagonistic relationships with their regulators probably want to engage in behavior that won't benefit their long-term shareholders. Bear Stearns and Lehman Brothers fought hard for permission to use more leverage. It killed them.

22. Remember what Wharton professor Jeremy Siegel says: "You have never lost money in stocks over any 20-year period, but you have wiped out half your portfolio in bonds [after inflation]. So which is the riskier asset?"

23. People talk about market averages -- average P/E ratios, average annual returns -- but historically, markets rarely trade anywhere close to averages. Stocks are typically swinging between far undervalued or far overvalued, crashing or surging. The middle ground we think of as "normal" is a rarity.

24. The best company in the world run by the smartest management can be a terrible investment if purchased at the wrong price.

25. The single most important investment question you need to ask yourself is, "How long am I investing for?" How you answer it can change your perspective on everything. 

Check back every Thursday and Friday for Morgan Housel's columns on finance and economics. 

Read/Post Comments (21) | Recommend This Article (173)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 28, 2013, at 6:44 PM, TheDumbMoney wrote:

    Dude, thanks for the shout-out! Very unexpected and I'm honored. Take care and keep fighting the good fight.


  • Report this Comment On March 29, 2013, at 10:56 AM, daveandrae wrote:

    I would add that in 2011, a year in which the s&p 500 was relatively flat, appreciating by just 2.12% in total return, seventy-five percent of U.S. equity mutual funds not only underperformed the market, the average, aggregate, retail equity investor underperformed their very own managers, averaging a net loss of -5.32%.

    Sadly, one cannot help but wonder if this percentage was determined before or after, fees, commissions, and taxes were included.

    Thus, outperforming "the market" is not the beginning of wisdom. True wisdom comes from the realization that you're outperforming most investors.

  • Report this Comment On March 29, 2013, at 5:18 PM, eddietheinvestor wrote:

    Excellent article. This is very helpful. Thank you.


  • Report this Comment On March 30, 2013, at 11:12 AM, SkepikI wrote:

    I predict this fine article will generate scores of "additions" to your 25, so I won't.... I will note however, your cautionary epigrams particularly on the Bond market have my full attention. The current euphoria gives me the chills -

  • Report this Comment On March 30, 2013, at 1:20 PM, Johntm63 wrote:

    Your articles are always informational, educational, and full of wisdom. Thank you.

  • Report this Comment On March 30, 2013, at 2:49 PM, snapperreef wrote:

    Thanks for some really good information that needs rereading often--actually until it's finally fixed in my brain.

  • Report this Comment On March 30, 2013, at 2:50 PM, Grahdodd wrote:

    This may be the single best piece I have read in the past few years.

    Thank you.

  • Report this Comment On March 30, 2013, at 3:06 PM, savethefarm wrote:

    This article is admirably rational.

    Now, what do we do to protect our investments beyond diversification and having a long, long outlook?

  • Report this Comment On March 30, 2013, at 4:20 PM, doctorholiday wrote:


    A corollary to #3: it helps to have liquidity when times are tough. And, a # 26. Keynes likened picking stocks to judging a beauty contest. Success depends, however, not on picking the most beautiful, but rather on picking whom the other judges will pick. Never, let your view of what is beautiful blind you to what is: the market is driven by the actions of others, not by you nor by what you might wish.

    I am posting the list on the 'fridge!

  • Report this Comment On March 30, 2013, at 5:07 PM, optimist911 wrote:

    It's always good to have a long-term outlook on the market. This way you can delay the pain of losses as far into the future as you want.

  • Report this Comment On March 30, 2013, at 6:12 PM, Joemit wrote:

    Excellent article. I might add - don't be afraid to pay taxes on gains

  • Report this Comment On March 31, 2013, at 3:06 AM, Sotograndeman wrote:

    "8. 90% of Warren Buffett's success can be explained by three factors: Patience, compound interest, and time."

    These three factors alone are necessary - but not sufficient. His exceptional ability to identify great companies selling at good prices, and having the courage to bet big on them, are necessary prerequisites. Valuation is critical. You mention this in isolation as #24, but it has to be integral to any assessment of Buffett's greatness.

    Thanks for the article.

  • Report this Comment On March 31, 2013, at 7:00 PM, Millsteen wrote:

    Incredible summary of investing advice and hopefully the people who need it most will read it.

  • Report this Comment On April 01, 2013, at 12:47 AM, jlclayton wrote:

    I wish I had this article to read when I first started investing over 10 years ago. But then again, now I have learned enough of the lessons that my losses have taught me to fully appreciate all the points that the article makes.

    Great article--thank you!

  • Report this Comment On April 01, 2013, at 7:35 AM, xxxArthurDentxxx wrote:

    Very nice article, thanks for publishing. I like No. 15 best!

  • Report this Comment On April 01, 2013, at 1:51 PM, FelixCaliferous wrote:

    Great advice. Now, if I could only follow it.

  • Report this Comment On April 01, 2013, at 6:32 PM, veritasvincit wrote:

    Thank you Morgan.

    Have sent this article to numerous family members and friends who tend to follow the herd, to their detriment. Many believe they're 'safe' in bonds, gold, etc. Talking to them about upside risk produces only a glazed stare. I sure hope they'll all begin reading your articles.

    Buffett has remarked that opportunities to purchase a stocks you have carefully researched should hit you over the head (such as 4 years ago). He and Munger have said they'd rather jump over seven one-foot hurdles than one seven-footer.

    Big ole recessions and corrections should make the true investor drool (metaphorically).

  • Report this Comment On April 05, 2013, at 12:28 PM, ckh2 wrote:

    Point #14 Notice the embedded ad for Vanguard. Almost subliminal. Perhaps the whole point of the article.

  • Report this Comment On April 05, 2013, at 1:45 PM, decoupodge wrote:

    @ckh2. Yeah why can't I have a Scottrade Roth IRA?

    Also # 8 states one of Buffets succes as time, I think it can be further defined as timing. He has bought stocks at a good price, then holds them forever.

  • Report this Comment On April 05, 2013, at 1:54 PM, TMFMorgan wrote:


    I have no connection to Vanguard, and it's not an ad.


    Can you buy Vanguard ETFs through scottrade without a trading commission? (serious question)

  • Report this Comment On April 12, 2013, at 11:16 AM, fikemj wrote:

    Morgan, you can buy Vanguard ETF's (as part of there list of 100 or so) as a commission-free ETF. I do this in my Roth there and think it carries over to normal accounts. Great article

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