Here, in summary, are a few of the lessons I have learned over the years from doing what I do:
(1) Be an investor, not a preacher. Investing isn’t a moral pursuit. It’s not about right or wrong, good or evil. It’s about bullish or bearish. In other words, don’t let your political views bias your investment decisions. Buy low, sell high, but invest for the long run, if you are young enough.
(2) Be an empiricist, not a dogmatist. Get to know the data before you come up with your theory. This helps to avoid the curse of faith-based, rather than fact-based, analysis. Recognize that there are lots of intellectual hucksters promoting their theories without ever letting the facts get in the way. When the facts suggest a scenario that you didn’t expect, be open-minded enough to recognize its import. Don’t let cognitive bias blind you to what’s really going on. Be willing to change what you believe if the facts warrant it. Staying wedded to constructs or ideas that have outlived their usefulness is a sure way to lose money.
(3) Be a policy wonk, not a critic. Don’t second-guess policymakers and expect them to change course just because you are convinced they are on the wrong one. However, as I learned along the way, pay close attention to new legislation that changes taxes or regulations. I wish I had paid more attention to the unintended consequences of some of the major laws that deregulated the financial industry.
(4) Be a lender, not a borrower. While we all know that Polonius said, “Neither a borrower nor a lender be,” there’s no evidence that Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” But it sounds like something he might have said. You can make a bundle of dough by borrowing money and buying stocks on margin. But you can also lose lots of money that way. If day trading isn’t your day job, succeed at what you do best and let dividend-yielding companies work their magic of compounding your return.
(5) Be revolutionary, not evolutionary. I’m not advocating that you conspire to overthrow the government. However, change happens, and sometimes it happens much faster than was widely anticipated or even perceived as it was happening. The end of the Cold War and China entering the World Trade Organization were revolutionary changes with major consequences for the global economy and financial markets. While such dramatic events might be infrequent, the revolutionary impact of technological innovation on our lives seems to be moving at a faster and faster pace.
(6) Be an optimist, not a pessimist. History shows that optimistic investment strategies tend to work better over time than pessimistic ones. Doomsdays occur from time to time, but they don’t last as long as the good times. If you are going to be bearish, try to be so when everyone is too bullish. Then when everything falls apart, you can say, “I told you so.” However, don’t forget to turn optimistic once everyone else is pessimistic. Remember: don’t worry, be happy, but stay informed!
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