When the wisdom of a legendary investor is beautifully packaged in one concise sentence, it's like the intersection of investing and poetry.
When you think about it, super-successful investing gurus have it pretty tough. They put in all that hard work over the years to make their money, and suddenly people want them -- nay, expect them -- to reveal the secrets to their success in 10 words or fewer!
Fortunately, a lot of these successful investors seem happy to oblige. From Warren Buffett to Peter Lynch, and from Benjamin Franklin to Michael Jordan, here are 10 nuggets of investing wisdom and what we can all learn from them.
1. "The four most dangerous words in investing are: 'This time it's different.'"
--Sir John Templeton, investor and mutual-fund pioneer
In the dot-com bubble of the late 1990s, people said it didn't matter that most of the ballooning Internet stocks had never come close to turning a profit: This was a "new economy." Things were different. In the more recent real-estate boom, it didn't matter that homes were overvalued: We were protected by those complicated derivatives that nobody really understood. Things were different.
The lesson: Anytime you hear that things are different this time, invest as if things are the same as they always were.
2. "The way to make money is to buy when blood is running in the streets."
--John D. Rockefeller, the world's richest man in the late 1800s
It sounds pretty callous, but it's true. Take a look at any stock chart over a long period, and you'll see some pretty big dips. Those were obviously the best buying opportunities, but they were also the times when the experts were urging you to sell. It takes courage to buy when everyone else is running for the hills, but if you believe in the long-term fundamentals of the company involved, it's the right thing to do.
The lesson: Think long-term. If the long-term outlook is good, then temporary crises are just great buying opportunities.
3. "Know what you own, and know why you own it."
--Peter Lynch, successful Fidelity fund manager
Some investors pay fund managers small fortunes to invest their money for them. Others place their faith in stock tips from a neighbor, a friend, or a guy in a bar. But Peter Lynch knew that successful investing took hard work and that nobody else could do it for him. He studied companies in immense detail, only investing when he was sure he understood their business models and prospects completely.
The lesson: Do the hard work and trust your own research -- not someone else's opinion. Emulating Peter Lynch means evaluating a business and its quality of management so you can easily and confidently answer the question, "Why do I own this stock?"
4. "Wide diversification is only required when investors do not understand what they are doing."
--Warren Buffett, the "Sage of Omaha"
This is an interesting one, because it goes against most investing advice you'll read. Newspapers and websites preach diversification because it's a safe investing style that works for most people. But Buffett didn't get rich by diversifying. He made big calls on stocks he was super-confident about, and because he knew what he was doing, those calls paid off.
The lesson: If you can honestly say that you understand exactly what you're doing and what the risks are, take bolder positions on fewer stocks. If not, broad diversification is still the safest bet.
5. "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."
--Paul Samuelson, Nobel Prize-winning economist
Most of the people quoted in this article got rich slowly. They took advantage of long-term growth and the compounding effect -- things that are dull but effective. When they owned a stock, they didn't worry about every zig and zag in the price. They were thinking in decades, not minutes.
The lesson: Embrace dullness. If you really want to speculate on whims and hunches, do it with a limited amount of money that you can afford to lose (some people call this a "mad money" account).
6. "An investment in knowledge pays the best interest."
--Benjamin Franklin, Founding Father
What's better: doubling your money on a stock pick or learning something that helps you make more money for the rest of your life? Clearly it's the latter. The best investors don't ever think of their education as complete; there's always something new to learn. One good place to begin is Wall Street Survivor's Getting Started in the Stock Market courses.
The lesson: Before you invest in stocks or bonds, invest in yourself.
7. "In the short run, the market is a voting machine, but in the long run it is a weighing machine."
--Benjamin Graham, pioneering value investor
Will the market go up or down today? It depends on the confidence of thousands of investors and traders (mostly institutional), which can shift from bullishness to panic in a heartbeat. And will the market go up or down over the next 10 years? It depends on how much money companies can make in that time. That's what Graham was saying, and it's a valuable lesson. Try to tune out the popularity contest, and focus on weighing the merits of each investment.
The lesson: You can't predict the short-term ups and downs of the market, but you can assess long-term value, so invest based on that.
8. "Every once in a while, the market does something so stupid it takes your breath away."
--Jim Cramer, TV personality and former hedge-fund manager
It's easy to spot these moments of stupidity in hindsight, but not so easy at the time. As Graham said, the market is a voting machine in the short run, and sometimes voters make bad decisions (remember Dan Quayle?). So be prepared for the unexpected, and try to avoid getting caught up in either "irrational exuberance" or panic.
The lesson: Trust your own judgment and don't follow the herd when it seems to be running off a cliff.
9. "Don't look for the needle in the haystack. Just buy the haystack!"
--Jack Bogle, Vanguard founder
This is the opposite of Warren Buffett's advice. Which one to choose? It depends on an honest assessment of your own ability. If you think you can emulate Buffett's knowledge, work ethic, and stock-picking prowess, make a few big investment calls. For most people, however, Bogle's advice works best. The market as a whole generally gives good long-term returns, so save yourself the stress and just buy an index fund.
The lesson: It's tough to beat the market, but simply matching it will generally make you good money in the long run.
10. "The minute you get away from the fundamentals -- whether it's proper technique, work ethic, or mental preparation -- the bottom can fall out of your game."
--Basketball star Michael Jordan
Well, OK, this quote wasn't originally about investing, but it's definitely worth reading every time you get the urge to click the "buy" button on a hot stock tip.
Want more lessons on investing? Take some of the courses in Wall Street Survivor's "Investing like the Greats" course pack to get some in-depth knowledge of the strategies these famous investors used to make fortunes.
Did we miss some of your favorite investment quotes? Throw 'em in a comment below!
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