7 Rules For Long-Term Investing Success
2022.04.22 16:33
Long-term investing requires some basic rules to avoid pitfalls along the way. If investing money worked as the mainstream media suggests, then why, after three of the most significant bull markets in history, are 80% of Americans so woefully unprepared for retirement?
Many believe that investing in the financial markets is their only option for retiring. Unfortunately, they have fallen into the same trap as most pension funds, hoping market performance will make up for a ‘ shortfall.
Speculation is not a viable long-term investing strategy
Chasing markets is the purest form of speculation. It is simply a bet on higher prices rather than determining if the price you are currently paying for those assets is selling at a discount to fair value.
Along with David Dodd, Benjamin Graham attempted a precise definition of investing and speculation in their seminal work (1934).
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There is also an essential passage in Graham’s
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Indeed, most individuals have forgotten the meaning of However, the following 10-guidelines from legendary investors can help us refocus our attention on what matters when investing long-term.
1. Jeffrey Gundlach, DoubleLine
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Such is a common theme that you will see throughout this post. Great investors focus on “ because ” is not a function of how much money you will make. It is how much you will lose when you are wrong. In investing, or gambling, you can only play as long as you have capital. If you lose too much money, you can no longer play the game.
A fundamental tenet of long-term investing is this. Be greedy when others are fearful and fearful when others are greedy. One of the best times to invest is when uncertainty is the greatest and fear is the highest.
2. Ray Dalio, Bridgewater Associates
Nothing good or bad goes on forever. Investors repeatedly make the mistake of thinking, The reality is that despite Central Bank interventions, or other artificial inputs, there is never a repeal of the business and economic cycle. Ultimately, what goes up, must and will come down.
Wall Street wants you fully invested “all the time” because that is how they generate fees. However, as an investor, it is crucially important to remember that “price is what you pay and value is what you get.” Eventually, great companies will trade at an attractive price. Until then, wait.
3. Seth Klarman, Baupost
Predictive because of cognitive biases, investor behavior is the most considerable investment risk. dominate the investment cycle of investors, which ultimately leads to Try to factor this into your strategy for investing long-term.
4. Jeremy Grantham, GMO
Successful investors avoid at all costs, even if it means underperforming in the short term. The reason is that while the media and Wall Street focus your attention on chasing market returns in the short term, the excess “risk” built into your portfolio will lead to inferior long-term returns. Like Wyle E. Coyote, chasing financial markets higher will eventually lead you over the cliff’s edge.
Follow these classic risk management rules.
5. Howard Marks, Oaktree Capital Management
As with Ray Dalio, realizing that nothing lasts forever is critically important to long-term investing. To one must first Understanding that all things are cyclical suggests that investments become more prone to declines after long price increases than further advances.
SP500-Total Return Valuations
6. George Soros, Soros Capital Management
Back to risk management, being right and making money is great when markets rise. However, rising markets tend to mask investment risk quickly revealed during market declines. If you fail to manage the risk in your portfolio and give up all of your previous gains, you lose the investment game.
7. Howard Marks, Oaktree Capital Management
The biggest driver of long-term investment returns is minimizing psychological investment mistakes. Baron Rothschild once stated, Such means that when investors are you want to be the one they are selling to at discounted prices. The opposite is also true.
As an investor, you must step away from your and look objectively at the market around you. Is the market reflecting or “ Your long-term returns will depend significantly on how you answer that question and manage the inherent risk.
– Benjamin Graham
Final thoughts on long-term investing success
With the rapid speed of social media and the “short-termism” perpetuated by the media, it’s easy to lose sight of what is necessary to achieve long-term investing success. We hope our words of wisdom help you frame your strategy for accumulating wealth in the long term.
We are a wealth management firm in Houston serving clients across the country. If you’d like to speak with us about your portfolio or financial plan, please set up a time to talk.
