Investing Vs Speculating
Finally, all performance-chasing-selling a fund which has lagged for the last three years to buy one which has shot out the lights-is speculating rather than investing. It is trend-following, which is the essence of speculation. It is the antithesis of a long-term investment decision, in that investment is always and everywhere the search for undervaluation, while speculation is usually the quest for price momentum.
Know the difference between speculating and investing. Do not speculate with core capital. And you can never make this Great Mistake.”
ASSET ALLOCATION
“Let every man divide his money into three parts, and invest third in land, a third in business, and a third let him keep in reserve.”
– Talmud
(c. 1200 BC – AD 500)
Asset Allocation is not a new idea! The Talmud quotation above is approximately 2,000 years old. Whoever said it knew something about risk. He also knew something about return. He may have been the world’s first proponent of asset allocation.
Today we talk about asset allocation rather than diversification, but that is really just a new name for a very old and time tested investment strategy. A more contemporary translation of the advice might read:
Let every investor create a diversified portfolio that allocates one third to real estate investments and one third to common stocks, with the remaining one third allocated to bonds.
ROGER GIBSON
[From the Book ‘Asset Allocation – Balancing Financial Risk’ by Roger C. Gibson]
One Size Fits One
CHASING STAR FUNDS
“Have you ever been sitting in traffic in a lane that’s not moving and watching people switch to the lane next to you that’s empty? You’re frustrated by your lack of progress and annoyed by all the people passing you. So you switch lanes.
No sooner do you switch lanes when the traffic stops in that lane.
This is exactly what happens to investors, who chase this year’s hot fund.
History shows that those who constantly change lanes to the year’s hottest funds don’t keep up with the next year’s overall average returns.”
CHARLIE MUNGER
Using Stock’s volality as a measure of risk is nuts. Risk to us is: 1) the risk of permanent loss of capital, or 2) the risk of inadequate returns.
LEONARDO DA VINCE
He who wishes to be rich in a day will be hanged in a year.
– Leonardo da Vinci (1452-1519), Notebooks, c.1500
WARREN BUFFET
“Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”
MARK TWAIN
There are two times in a man’s life when he should not speculate: when he can’t afford it and when he can.
GROWING THE TREE
“In the past, I have met many investors who did not understand the ‘seasonality’ of their investments. Every portfolio will go through cycles or seasons. There will be times when new buds of opportunity will appear. There will be times of prodigious growth. There will be times when we harvest from that growth. And, quite frankly, there will be times when the tree will look barren in its winter season. I’ve seen too many people who want to uproot their tree in the middle of winter. With just a little patience they would have seen the season change and new growth appear. These things are all cyclical. I view your portfolio as a valuable growing tree. My job is to know when to water it (buy new investments), when to harvest it (sell), when to fertilize it (buy), and when to prune (sell). With patience and care we know it will grow strong and fruitful.”
“Storyselling Revisited: How Top Advisors Persuade” by Scott West & Mitch Anthony
ATTITUDES OF WEALTH
– I am an excellent money manager
– I always pay myself first
– I put money into my financial freedom fund every day
– My money works hard for me and makes me more and more money
– I earn enough passive income to pay for my desired lifestyle
– I am financially free. I work because I choose to, not because I have to
– My part-time business is managing and investing my money and creating passive income streams
Millionair Mind Intensive @ T Harv Eker
[Winning the Money Game]
OSCAR WILDE
When I was young I thought that money was the most important thing in life. Now that I am old, I know that it is.
EPICTETUS
“Wealth consists not in having great possessions, but in having few wants.”
MILTON FRIEDMAN
Inflation is taxation, without legislation.
NOEL WHITTAKER
Becoming wealthy is not a matter of how much you earn or who your parents are or what you do. It is a matter of managing your money properly.
TONY ROBBINS
“The difference between success and failure is not which stock you buy or which piece of real estate you buy, it is asset allocation.”
DAN SULLIVAN
If you have enough money to solve a problem, you don’t have a problem.
FANTASY OF RETURNS V/S
ACTUAL SAVINGS
Saving money, avoiding speculative investments, and repeating that process over and over may not be glamorous, but it gets the job done.
Our attraction to complexity distorts the way we approach our financial goals. The simple options that have the largest impact on your financial success require discipline, patience, and hard work. They require that we apply those basic fundamentals over and over for years. It’s much easier to entertain ourselves with the fantasy of finding an investment that will give us a fantastic return than to save a little bit more money each month.
But in the end, the fantasy will fail us. The work will deliver.
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NOT LOSING IS WINNING
To a tremendous extent, outstanding real-life investment success does not rely on doing anything brilliant, but on simply avoiding The Big Mistake. It’s not about hitting the most great shots, but rather the fewest really terrible shots.
NICK MURRAY
(In the Book ‘Behavioral Investment Counselling’)
