- Legendary investors' secret sauce for success is their investment philosophy
- Be it a bull or a bear market, these principles can help investors navigate any market conditions
- Let's discuss 7 principles that you should never forget while investing in the stock market
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Great investors like Buffett, Lynch, Graham, and Marks aren't distinguished solely by their ability to identify the best deals. They adhere to a unique and significant investment philosophy that guides all their actions in the markets.
Here are 10 fundamental ideas and approaches that you can adapt from these legendary investors:
1. "Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway." (Warren Buffett)
Consider your banker or advisor: Do they invest in what they propose to you? How did their personal investments perform this year? How do they manage not just your money but their own? Asking such questions may strain relationships.
2. "Investing is about the stomach, not brains." (Peter Lynch)
The best strategy means nothing without emotional management. Planning is crucial, but without emotional control, it's worthless.
3. "Time in the market beats timing the market." (Ken Fisher)
Buying an index (like the S&P 500) and holding it for 20 years is more profitable than entering and exiting the market. Planning well from the start for a sufficiently long time horizon and sticking to the plan usually outperforms market timing.
4. "Risk means uncertainty about which outcome will occur and the possibility of loss when unfavorable outcomes happen." (Howard Marks)
Marks's approach to risk emphasizes that volatility is not risk; it's a natural market characteristic. The real risk lies in uncertainty about outcomes and potential losses in unfavorable situations.
5. "You're neither right nor wrong because the crowd disagrees with you. You're right because your data and reasoning are correct." (Ben Graham)
Graham teaches us to be wary of the crowd, think independently, and not be swayed by the often emotional and irrational herd. Following the contrarian logic is a common-sense approach, albeit one followed by few.
6. "Think about it: it doesn’t make sense to set a goal to make money because money has no intrinsic value. It's wiser to start with what you really want, your authentic goals, and then work backward to ask what you need to achieve them." (Ray Dalio)
Many investors invest randomly, aiming to "make money," which, upon reflection, makes no sense. Dalio recommends Goal-Based Investing (GBI), where you define goals with specific amounts and deadlines, enabling the right strategy to achieve those precise goals.
7. "Time is your friend." (John Bogle)
Choosing a bad market moment or enduring market swings is possible, but patience and a long time horizon bring investors closer to success. Buffett, the best investor in history, holds stocks with a decade-long perspective.
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Disclosure: The author does not own any of the securities mentioned in this report.