Many times when you don’t know what to do, it’s wise to take advice from people who are experts in their respective fields and have been extremely successful. When things seem unsettled, these three savants offer timeless advice for investors.
Such words of wisdom are especially appropriate amid turbulent circumstances: stocks hitting lows and experiencing extreme volatility. The variables change, but inevitably crises and problems occur and affect markets. Most importantly, we always overcome them.
Here is some food for thought from three great investors to help avoid investment mistakes:
Crises in markets come and go: Shelby M.C. Davis
A legendary mutual fund manager, Davis observed that human history is the history of crises and relative periods of calm. It is no surprise that markets exhibit the same patterns of exuberance, fear, and everything in between. Every crisis seems to have different origins. A wise investor acknowledges that crises ebb and flow, and that the best investment strategy adjusts to changes but avoids drastic over-reactions.
As Davis put it: “Crises are painful and difficult, but they are also an inevitable part of any long-term investor’s journey. Investors who bear this in mind may be less likely to react emotionally, more likely to stay the course, and be better positioned to benefit from the long-term growth potential of stocks.”
Don’t let your gut emotions steer investment decisions: Benjamin Graham
Graham is considered the father of value investing. He taught Warren Buffett and wrote several classic books on investing. Graham said: “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Avoid market timing: Peter Lynch
Lynch rose to fame by successfully managing the Fidelity Magellan fund from 1977 to 1990, producing an eye-popping 29% annual rate of return. Sadly, the average investor in his fund during those thirteen years earned only a small fraction of that return by jumping in and out of Magellan.
Lynch once summed up his view of market timing this way: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
The Standard & Poor’s 500 from 1992 to 2012 registered an 8.2% annual return. Investors who missed the best 10 S&P 500 days earned about half as much. Those who missed the best 30, 60, or 90 days fared progressively worse. In other words, stay at the party from start to finish—do not dart in and out if you do not like the music or find the conversation boring.
The lesson provided by these three investment sages is that your own mistakes may be a bigger source of poor returns than economic and political factors that move markets and are beyond your individual control.