Advice from Legends

Today we’re going to learn from the best of the best.

The below investors have a combined net worth of over $130 billion. They’re all professional investors who most of us have no right to try and copy.

That said, each has shared valuable insights helpful to non-professional, mom-and-pop, average Joe investors like you and me.

A thought worth revisiting:

Trying to copy the investment style of any of these legendary professionals is like trying to copy how Michael Jordan played basketball, Usain Bolt sprints, Serena Williams hits a tennis ball, and so on.

These folks are, as they say, “built different,” likely benefitting from unique, innate gifts and experiences that contributed to their massive investing success.

To some unknowable extent, they also benefited from luck.

There’s plenty of knowledge to take away from these legends, but trying to copy their investment style is probably a bad move.

Warren Buffet

Warren Buffet is widely considered the best investor alive.

He’s the chairman of Berkshire Hathaway and has as many incredible quotes as Mark Twain, Abraham Lincoln, and all the other famous people that seem to have said everything.

“Only when the tide goes out do you discover who’s been swimming naked.”

During a bull market, when stock prices rise, everyone’s a genius. Your neighbor, co-worker, and idiot friend seem to be making money hand over fist, no matter what sort of asinine investment strategy they employ.

Buffet’s point is not to judge investors by their performance during a bull market. Making money when the market is up isn’t the difficult part.

Who is left standing when the market turns downwards?

The best strategy for investing performance is to stay invested over the longest period possible.

Those who gamble and speculate risk being knocked out of the game forever.

And for what? A few extra percentage points on your return?

Peter Lynch

Peter Lynch is widely regarded as one of the best fund managers ever.

He worked at Fidelity Investments, managing the Magellan Fund from 1977 to 1990, growing the fund from $18 million to $14 billion with an average annual return of 29.2%.

You might think: “Cole, I thought you said people can’t beat the market.

I hear ya. Lynch is a rare example. You and I are still likely better off not trying.

“The real key to making money in stocks is not to get scared out of them.”

It’s common for retail investors (non-professionals) to have an investment strategy that looks something like this:

  1. Hear about a stock or the greater stock market going up
  2. Buy that “hot” stock or start investing in the greater market
  3. Stock goes down or the entire market goes down
  4. Sell all stocks out of fear of greater loss

Excluding short-term traders (who have varying success), buying stocks for short-term returns is not a great strategy. But, if you can buy and hold a low-cost, diversified stock portfolio for a decade or more, you will likely be in good shape.

If you panic sell anytime your investments take a dip, the odds of losing money are a lot higher.

Ray Dalio

“I think that the first thing you should have is a strategic asset allocation mix that assumes you don’t know what the future is going to hold.”

If you’ve never heard the term “asset allocation,” it’s just a fancy way of saying what you’re invested in. For example, a long-time popular asset allocation strategy is the 60/40 portfolio, which holds 60% stocks and 40% bonds.

It’s simple: what you buy is the most important investment decision you’ll make. After starting to invest, of course.

Lucky for us, the true number is irrelevant. It’s clear that asset allocation, what you invest in, likely matters more to your returns than any other factor.

Listen, but don’t copy

There are many other investing legends out there. If you keep reading personal finance and investing content like this, you will encounter more and more.

They all have these great quotes and one-liners about investing, the stock market, and more. You’ll be in great shape if you can learn to pull the wisdom that applies to you while ignoring the other information that doesn’t.

The goal is not to copy these investors. Frankly, fat chance of any of us accomplish that.

The good news is that we don’t have to.

You can learn from professional investors without trying to mimic them.

Our goal differs from theirs. We invest to protect our purchasing power and build a better future for ourselves and for our loved ones. In short, we invest to make ourselves richer. That doesn’t need to be a full-time job.