14 Thoughts That Changed How I Think About Investing

Wisdom from smart people.

Jun 25, 2014 at 11:00AM

A smart sentence can teach you more than some books. Here are 14 that totally changed how I think about investing. 

"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." -- Erik Falkenstein

Most investors assume they're average and attempt to become above average. In reality, they're far below average (or the market's average return) and should put all their effort into working their way to par. 

"When you first start to study a field, it seems like you have to memorize a zillion things. You don't. What you need is to identify the core principles -- generally three to twelve of them -- that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles." -- John Reed

There are only four or five things you need to understand about finance. Everything else is fine-tuning around the edges. 

"Timing the market is a fool's game, whereas time in the market is your greatest natural advantage." -- Nick Murray

There is nothing more important in investing than the amount of time you can invest for. It's also one of the most discounted and ignored traits. 

"Risk is what's left over when you think you've thought of everything." – Carl Richards

This is the best definition of risk I've come across. Most things we worry about aren't risky specifically because we're worrying about them. It's the stuff no one is thinking about that poses the biggest threat. 

"It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." -- Charlie Munger

This is similar to Erik Falkenstein's quote. Trying to be smart can be dangerous. There is more ground to gain by being less dumb than your competitors.  

"No one can foresee the consequences of trivia and accident, and for that reason alone, the future will forever be filled with surprises." -- Dan Gardner

You must come to terms with the reality that some things are impossible to forecast. Most things, actually. 

"Men resist randomness, markets resist prophecy." -- Maggie Mahar

See above. 

"My conceptual framework, which basically emphasizes the importance of misconceptions, makes me extremely critical of my own decisions. I know that I am bound to be wrong, and therefore am more likely to correct my own mistakes." -- George Soros

Skepticism bordering on paranoia is the healthiest attitude to have when making big investment decisions.  

"Read 500 pages [of books, magazines, reports, etc.] every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it." -- Warren Buffett

The fact that not many of us will do it is why not many of us are smart or successful. 

"To better avoid errors, you should talk to people who disagree with you and you should talk to people who are not in the same emotional situation you are." -- Daniel Kahneman

Most of what people consider "research" is just an attempt to confirm what they already believe. The only research that counts is the kind that hurts to think about. 

"When a possibility is unfamiliar to us, we do not even think about it." -- Nate Silver

Everything that has ever happened was unprecedented at one time. 

"You never know what the American public is going to do, but you do know they will do it all at once." -- Bill Seidman

This is why bubbles happen. People assume they can think for themselves, but safety in numbers is far more appealing.  

"A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguishable from the truth." -- Daniel Kahneman

This is why people read and listen to the same pundits who say the same thing all day long. 

"Acknowledging what you don't know is the dawning of wisdom." -- Charlie Munger 

You are exponentially dumber than you think you are. 

Good luck. 

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

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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