The past 12 months have been a tough time on the stock markets. Most global markets ended 2022 down from where they started, and if the value of your portfolio dropped as a result, you might be feeling a little bit concerned about your investments.
At times like this, it can help to remember some of the key principles of investing. Read onto discover some words of wisdom from some of the most successful investors in the world about investing during difficult times.
1. “Don’t look for the needle in the haystack. Just buy the haystack!” – John Bogle
A giant of the investing world, John Bogle’s famous line refers to how much time and money you can lose searching for that one stock that will make you rich beyond your wildest dreams.
Rather than wasting time seeking out one star player, accept that it is virtually impossible to predict which stocks will outperform the others. By investing in a diverse portfolio, you can mitigate your risk because those that outperform strongly will mitigate those who fare less well, protecting your overall wealth in the long term.
2. “The individual investor should act consistently as an investor and not as a speculator” – Benjamin Graham
Somewhat related to John Bogle’s advice, this quote reminds us that no one has a crystal ball.
Instead of wondering what could be around the corner and taking a chance on your assumptions, follow the guidance and wisdom of the key investment principles.
3. “The biggest risk of all is not taking one” – Mellody Hobson
During difficult times, risk can feel like a scary thing to embrace. As stock markets become volatile, you might be tempted to move more of your wealth into cash or other seemingly lower-risk wrappers.
However, keep in mind Mellody Hobson’s advice that risk is an integral part of growing your wealth over the long term. The lower your risk, the less likely you are to experience the level of returns required to grow your wealth to meet your goals.
The caveat here is that your risk profile could change throughout your life depending on your goals. Regular reviews of your tolerance for risk with your planner are crucial for balancing your portfolio correctly.
4. “Investing is the intersection of economics and psychology” – Seth Klarman
You may not realise just how much of investing is actually about managing your own emotions.
But consider how it feels to see the value of your investments grow – it can be really thrilling and make you want to invest more.
Conversely, when the value of your investments is dropping, that feeling might change to panic or dread, leading you to question whether investing really is for you.
Now imagine if you only bought more stocks when you were feeling excited about investing, or sold your stock during those moments of doubt. You’d constantly be buying at high prices and selling at low ones – the opposite of a sound investment strategy.
That’s exactly what Seth Klarman is referring to in this famous quote, and it’s why the emotions you might be feeling after the turbulence of 2022 shouldn’t guide your decision-making around your investment portfolio.
5. “We don’t have to be smarter than the rest. We have to be more disciplined than the rest” – Warren Buffett
Possibly the most famous investor of all time, Warren Buffett has plenty of reassuring wisdom to share.
This quote relates to that emotional rollercoaster that most investors are familiar with. Emotion – or rather managing your emotions – is an important part of successfully growing your wealth using investments.
If you have the discipline to follow the guidance even when you’re feeling nervous and afraid of what might happen next, you’re much more likely to be able to hit your goals than those who believe they can outsmart the markets whenever things take a turn for the worse.
6. “Rarely do more than three or four variables really count. Everything else is noise” –Martin Whitman
If you’ve been investing for a while, you’re probably familiar with the sorts of headlines you might see during market volatility. They can be frightening and hard to ignore.
But as Martin Whitman points out, when you’re making a decision about your investments, the headlines aren’t usually very helpful. Variables like how soon you are planning to retire and the balance of your portfolio being correct for your risk profile are likely to play a much bigger role in the decision to make changes than wider economic factors.
7. “In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while” – Lou Simpson
Another quote that complements this one is from Peter Lynch: “You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets”.
In other words, the stock markets are constantly moving and changing. Sometimes they’re going up, sometimes they’re going down. It’s all part and parcel of investing and most of the conditions you find yourself in – good or bad – are likely to be temporary.
8. “The four most dangerous words in investing are, ‘it’s different this time’” – Sir John Templeton
Sir John Templeton’s words remind us that the key principles of investing are based on 100 years of data and experience.
Believing or even willing an investment to be different is a fool’s errand. Instead, keep an open mind about what could happen next and, as always, follow best practice to give yourself the best chance of hitting your long-term goals.
9. “Time in the market beats timing the market” – Ken Fisher
Perhaps one of the most frequently cited phrases in the investing world, this quote encapsulates one of the golden rules of wealth accumulation. Timing the market will usually lead to greater losses than waiting out volatility.
Attempting to time the markets could mean moving your investments into cash when the market drops by 10% or more, only reinvesting when they increase by 10% or more. The theory is that you can miss the worst days of the market and so avoid losing too much of your wealth, before reinvesting in order to benefit from market recovery.
In reality, it’s impossible to miss the worst days in the market without also missing the best ones. Research has shown that attempting strategies such as this one will usually leave your portfolio significantly worse off than if you had kept your money invested throughout the peaks and troughs.
You can read more about why time in the market beats timing the market on our website.
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