Today -- Jan. 31, 2015 -- is my 10th anniversary of working for The Motley Fool.
When I'm back at my desk on Monday, there will be a balloon and a thank-you present to recognize my "Fooliversary" (one of the many small things that've made the Fool Glassdoor.com's No. 1 place to work among all U.S. mid-sized companies for two years running).
Over that time, I've written or co-written nearly 700 articles and edited thousands more. I've launched Fool sites in new countries around the world. I've interviewed three Nobel Prize winners. I learned from and then shook hands with personal heroes Robert Shiller, Jack Bogle, and Billy Beane. I met the president (twice). As either a senior editor or managing editor of Fool.com from 2007-2013, I had a front-row seat to one of the most interesting runs world economies and stock markets have seen in decades.
To commemorate the occasion, here are reflections on what I've learned (or have had further drilled into my brain) since Jan. 31, 2005.
1. The first question anyone should ask themselves: Am I an investor, or am I a speculator?
This is borrowed from Bogle's excellent book Enough. Start there and a lot of subsequent choices will become clear.
2. Etymology is illuminating.
Fool co-founder David Gardner once mentioned this, and it really fascinated me: The word "invest" is from the Latin investire, "to clothe in, cover, surround"; later, "giving one's capital a new form."
3. "Penny stock investor" is oxymoronic.
To quote my own article from last year: "If you're thinking of speculating in penny stocks you've seen hyped on the Internet, remember this: you're probably the sucker."
4. Time arbitrage is the biggest advantage of the retail investor.
For retail investors like us, time is our only advantage. My colleagues Jeremy Phillips and Morgan Housel have stated this eloquently. Here's Jeremy:
"If arbitrage is buying in one market and selling in another, then time arbitrage is the concept of buying a stock from those with a different time horizon, and selling on our own terms."
And here's Morgan:
"[Time arbitrage is] exploiting the gap between your time horizon and mine. If you're worried about the next six months, but I can be patient for the next six years, I have an edge over you. You may sell shares today because you don't want to have another down month, and I'll be happy to buy them from you to focus on my up decade."
5. Related to above: The longer you hold stocks, the less risky they become.
Stocks are riskier than other asset classes. But the longer your time horizon, the less risky they actually are.
6. Investment mistakes are vital to investment successes.
Mistakes aren't aberration. They're part of the game. Own them, learn from them, expect them, move on. Here are two quotes to help you feel better about doing so: "More than 20% of Einstein's original papers contain mistakes of some sort," reported The New York Times. And remember the legendary Peter Lynch's quip: "In this business, if you're good, you're right six times out of 10."
7. Be a business-focused investor.
We're fond of saying "Buy businesses, not tickers." A ticker moves around a lot between 9:30am and 4:00pm every day. A business does not (or at least, should not). If your time horizon is measured in years or decades, your goal should be to find great businesses and watch them create shareholder value slowly and steadily.
8. Trading is not investing.
As Professors Brad Barber and Terrance Odean proved in their famous 2000 paper, "Trading is hazardous to your wealth."
9. The future is very, very, very difficult to predict.
There are hundreds of examples of failed predictions from financial pundits -- just in the past 12 months. I wrote about some of them here.
10. And even if your prediction comes true, you may not make money off it.
In 2007, in one of my favorite articles ever, my colleague Tim Hanson and I read a book called The 100 Best Internet Stocks to Own. This book had the staggering misfortune of being published in the spring of 2000, at almost the precise top of the dot-com bubble.
In the introductory chapters, the author, Greg Kyle, estimated that there would be 430 million Internet users by 2003 and that by 2005, "consumers will spend $150 billion shopping online." Actually, Kyle was way too conservative -- as we wrote, "By 2003, nearly 600 million people were online. In 2005, shoppers spent more than $175 billion" on the Web.
And yet, Kyle's collection of 100 stocks performed poorly; from 2000-2007, Tim and I crunched the numbers and found that their cumulative return was -62%. Only 13 of the 100 actually increased in price over that time frame -- while 18 went bankrupt.
11. Along those same lines: Fast-growing economies don't necessarily = fast-growing stocks.
The Wall Street Journal fully debunked this myth about emerging-market investing in an article last year:
Professors ... and researchers at MSCI Barra have all investigated the relationship between a country's economic growth and the returns from its stock market, and they've found none. (Indeed if there is a correlation, it's a weak one -- and it's negative. In other words, investors may have earned on average slightly more from slow-growth countries than fast-growth ones.)
12. One explanation for the above: In the market, as in life, performance matters. But not as much as performance versus expectations.
"When a book wins an award, its popularity goes up -- but so does the number of bad reviews." That's what a group of academic researchers found, as reported by The University of Chicago Magazine. One of the key reasons was that "an award raises expectations of a book's quality, leaving readers more easily disappointed."
Remember that the next time you see a headline along these lines: "Company XYZ reported record revenues and earnings, shares down 5%."
13. Investing is serious business. Don't think of your investable dollars as you would chips at a blackjack table.
To quote people much smarter than I:
"Investment is most intelligent when it is most businesslike." -- Ben Graham
"For most people, 'The Game of the Stock Market' is a distraction which prevents them from making money in 'The Business of Investing.' " -- Ron Muhlenkamp
14. But ... markets are fun. Studying and investing in businesses can and should be fun, exciting, and entertaining.
To quote David Gardner, "[Investing is] really not very different from the way you'd approach anything else in life: Simplify, study, observe, use patience, use common sense, and have fun with it."
15. Pundits in the media/on TV may not know more than you.
We've always been about demystifying investing, so that anyone -- novice to professional -- can understand what's going on. Unfortunately, we're in the minority. What's important to keep in mind is that people who use jargon or favor complexity often do it because they don't actually know what they're talking about.
For example, read this Henry Blodget post for his "14 Meaningless Phrases That Will Make You Sound Like A Stock-Market Wizard."
And try to follow the advice so eloquently stated by George Orwell: Simplify your English, Orwell wrote, so "when you make a stupid remark its stupidity will be obvious, even to yourself."
16. Writing will make you a better investor.
I enjoy writing. I realize it's not for everyone, but hear me out: Writing has made me a better investor. For starters, it makes you publicly accountable. It also makes you articulate your investment thesis -- if it's going to be online and publicly consumed (much less with a comments section underneath), you better consider all of the angles.
And furthermore, some of the best investors are great writers. (More on this in No. 37 below.)
17. Embrace your contradictions.
One of the greatest works of American literature is Walt Whitman's Leaves of Grass, and one of my favorite lines from that poem is this: "Do I contradict myself? Very well, then, I contradict myself; (I am large -- I contain multitudes.)"
I love the matter-of-factness -- even jubilance -- of these lines. It says: Embrace -- celebrate, even -- your contradictions.
For me, it means loving index funds and individual stock-picking. It means watching CNBC all day unapologetically while also thinking that CNBC can teach dangerous behaviors. It means rooting for Duke and North Carolina.
18. Index investing is an amazing innovation, and it works not because markets are efficient but because costs matter.
Writing in the Financial Times, Bogle explains why: "Whether markets are efficient or inefficient is beside the point. The cost matters hypothesis is all that is needed to explain why indexing works: gross return in the market as a whole, minus the costs of obtaining that return, equals the net return investors actually receive."
19. Again, costs matter.
As Oregon finance professor John M.R. Chalmers told Forbes, "The higher your fees, the worse your performance. It's the one sure thing in mutual funds.''
20. The four best words of investing advice.
When asked at a cocktail party for hot stock tips, remember the four best words of investment advice: "buy an index fund."
21. We have it pretty good in the U.S.
I work on our international businesses here at the Fool. The world often feels flat, but here in the U.S., we have a lot of very powerful, often overlooked advantages. For example: the aforementioned fund fees. According to a 2013 Morningstar report, the average expense ratio of a U.S. mutual fund is 0.82%. In Canada, the average is 2.42% (in part because Bogle's invention hasn't taken our neighbors to the north by storm).
Brokerage commissions are low; financial information is widespread, quite good, and often free; and innovations like robo advisors are pressuring advisor fee structures, for the ultimate benefit of investors.
22. Emotions matter more than aptitude.
As Warren Buffett has said, "Success in investing doesn't correlate with IQ ... what you need is the temperament to control the urges that get other people into trouble in investing."
23. There is such a thing as a contrarian consensus.
Investment writers often form a contrarian consensus of sorts. "Everyone hates Stock XYZ," they'll say. At Motley Fool CAPS or on a site like GuruFocus, though, you'll see it's quite the opposite -- everyone seems to love Stock XYZ. I've learned to ignore that narrative. It's a bit like the Seahawks using the "no one believed in us!" mantra throughout a season where they were prohibitive favorites at almost every point.
24. There is wisdom in crowds.
Two things have hammered home the point for me: Motley Fool CAPS, a community intelligence platform where the smartest investors' predictions are more heavily ranked than everyone else's, and Twitter, where, despite having carnival barker tendencies, some of the smartest conversations are happening.
25. You can't make chicken salad out of chicken sh*&.
This little bit of wisdom from my father (his moral: get the right tools to do the job right) turned me off of so-called cigar butt investing. I would rather own a good business at a fair price than a bad business at any price.
26. "Dividends are like getting married; buybacks are like hooking up."
Buybacks are common when times are good. Companies are loath to cut their dividend. This great quote, from NYU Professor Aswath Damodaran, pithily explains why.
27. Self-awareness is the key trait of a leader. It might just be the key trait of a good investor, too.
Know what you're good at, know what you're not. Buffett famously avoids technology stocks. According to Jason Zweig's excellent book Your Money & Your Brain, "Buffett himself believes that the key to his success has been knowing what he doesn't know."
28. Sometimes, things really are this simple: "If you want to be trusted, be trustworthy. If you demand hard work, work hard. If you want your colleagues to level with you, level with them"
That's another gem from Bogle's Enough.
29. The most important criterion for a growth investor: Size of potential market.
The No. 1 reason start-up companies fail, according to this great post by Marc Andreessen, is lack of market. When you're investigating small caps and high-growers, bear this in mind.
30. Culture matters. A lot.
Peter Drucker quipped that, from an organizational perspective, "culture eats strategy for breakfast."
It's why Fool co-founder Tom Gardner makes "culture" his No. 1 investment trait. "The greatest investments of all time are led by visionaries who aim to serve all stakeholders."
31. Incentives matter, too.
Charlie Munger says: "Never, ever, think about something else when you should be thinking about the power of incentives."
Think about how your fund manager is paid (i.e., often based on assets under management and not performance), or your advisor is paid, or even how your boss is paid. That one bit of information can tell you quite a bit about why the world works the way it does.
32. Look at your own business, and those you may invest in, through the lens of conscious capitalism.
What is its purpose? How well does it treat multiple constituents? As we wrote in 2013:
Professor Ed Freeman of the Darden School of Business at the University of Virginia puts it, "business is about how customers, suppliers, employees, financiers, communities, and managers interact and create value."
We strongly believe that the greatest and most successful companies are those that are able to benefit all of the various groups.
33. When interviewing job candidates, don't ask, "Where do you see yourself in five years?"
This is a mostly worthless question: The future is too uncertain, technology changes too fast, and life never plays out exactly as planned.
34. Instead ask, "Tell me about a job not on your resume."
You often get the best reflections on the most menial of jobs, or the ones that appear to be least relevant. I learned a lot about myself working minimum-wage jobs.
35. Be humble.
There are six Motley Fool core values (you can see them here). Five are fixed, one is personalized. The one I've chosen is "be humble" -- because humility keeps your mind open.
Robert Shiller, who has set alarm bells before the two major bubbles of the past two decades (stocks and housing), told The New York Times in 2005, before his housing bubble prediction had actually been confirmed, "I don't have any certainty. I have a lot of humility" about any prediction.
Shiller was awarded a Nobel Prize last year.
36. Remember that despite what headlines would suggest, the world is getting better and safer, slowly.
Writing in the Financial Times, Simon Kuper put it nicely:
The distinction between news and deeper trends is crucial. The French "Annales" historians taught us to see history not just as a parade of kings, wars and revolutions -- "news," if you like -- but as a study of historical structures in the long term, the historian Fernand Braudel's "longue durée."
The news may seem bad, but over time, the deeper trends have made the world safer.
37. Read a lot.
This one is obvious, so I'll leave some thoughts on what to read:
- Read Morgan Housel.
- Read Stock Advisor (subscription required, but it's nominal).
- Read a select few investors or investment books: Peter Lynch's One Up on Wall Street, Warren Buffett's Letters to Shareholders, Philip Fisher's Common Stocks, Uncommon Profits.
- Read about businesses. Quoting David Gardner, "I think I've only read two or three investment books in my life. I don't really enjoy investment books that much. I read a lot of business books and I think a lot about business -- because that's what I'm buying."
38. Surround yourself with smart people.
I've had the good fortune of being surrounded by smart and dedicated colleagues who have pushed me to do better.
39. Foster a "top it" attitude.
The Fool is a place where smart people are unafraid to come up with bad ideas, because even bad ideas provide a starting point for collaboration and improvement. So instead of saying "that's a bad idea," your challenge is to instead top the idea -- either by offering a better idea or improving upon the existing one.
40. Say "thank you."
This little act of common sense or good manners can get lost in the workplace. But think about how nice it is to simply be thanked for doing good work, and train yourself to do it regularly. We have an interesting system for employees to share "gold" rewards with one another internally, which is an even more elaborate way to foster goodwill and recognition.
(While I'm here: Thank you, Roger Friedman, for hiring me a decade ago.)
41. Always be learning.
Charlie Munger has said it best: "If you stop learning in this world, the world rushes right by you."
As I hope is clear from the sheer number of links and citations above, I've benefited greatly from the wisdom of others in the past decade. Here's to learning a lot more in the next 10 years.
Bonus: A look back at my top 5 most-read articles of the past 10 years:
- Why You Should Sell
- Stay Away From These Stocks
- Act Fast and Kiss Your Returns Goodbye
- Save Your 401(k) Before It's Too Late
- Buy These Stocks and Make Money