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WE all have our favourite racing legends in this great racing industry of ours. Mine is the late Pat Smullen, an absolute wizard in the saddle.
An investment legend, Charles Munger (Warren Buffett’s trusted assistant and vice chairperson of Berkshire Hathaway) passed away recently at the age of 99! Some of his quotations during his years of investing are Grade 1 in racing parlance. I have outlined below five of his greatest quotes on investing that I feel will make for interesting reading for investors and punters alike. Reflect on them as if you were studying racing form!
“Spend each day trying to be a little wiser than you were when you woke up.”
This quote by Charlie Munger comes with a prudent message of learning and enhancing our knowledge on value investing. While it is right to be interested in one’s investments, it is equally vital to update your knowledge on the different vehicles and avenues available for investing. This ensures your financial goals are aligned with the product/fund type/share that you are thinking of investing in. The more we learn, the better we get at making good solid investment-making decisions.
”The big money is not in the buying and selling but in the waiting.”
A very profound quote by Munger and one that is framed on my wall at work. The real message in these short few words is to be patient with our investments (not unlike a jockey making a move too early in a race).
Usually, investors respond to rapid market movements or events (e.g. Covid-19) with active buying and selling, focusing more on the latter. Such haste can compromise proven investment strategies that deliver over a longer period.
Also, it is remarkable to note that the term ‘waiting’ in the above quote can be likened with the ‘power of compounding’ where regularly investing over extended periods in a variety of market cycles can help you achieve your financial goals (e.g. investing monthly in a retirement plan).
In my experience, people cause more in 2014destruction to their portfolios due to their own ill-advised actions and behaviours rather than the performance of the markets themselves.
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments.”
As quoted by Munger, it is popularly believed that while it is wise to keep a periodic track of your equity portfolio and keep yourself aware on the varying market movements, it is unwise to frantically respond to how the market is faring, especially during a down-slide.
This kind of behaviour has a detrimental effect on the investors’ equity portfolio where the investor is in the pursuit to redeem his/her investments either in fear or greed. The S&P 500 declined by 34% on March 23rd 2020 from its previous high on February 19th 2020. By August of 2020 it had bounced back to its old highs!
“Simplicity has a way of improving performance by enabling us to better understand what we are doing.”
Munger believes that there is nothing more important than knowing the simple fact of ‘why’ and ‘how’ to invest. As an investor, you must be fully focused on what you are aiming to achieve, i.e. financial goals, gauge your risk appetite and investment horizon, and assess your investible surplus.
These may sound too complicated but are amazingly simple to follow. Keeping these factors in mind makes wealth creation a lot simpler and beneficial. The assistance of a good financial advisor can make life much easier too.
“We both (Charlie Munger and Warren Buffett) insist on a lot of time being available every day to just sit and think. That is very uncommon in American business. We read and think.”
Clear headed thinking is not as easy as it sounds. The best investors read a lot, reflect a lot and are not impulsive (a bit like a good punter).
According to Daniel Kahneman, most people wander through life unaware of the biases that shape their decisions. We only have to think back on the flight to property (foreign as well!) by many investors as an asset class (the herd instinct) during the early years of the 2000s and the consequences that ensued!
Niall Rooney B. Comm. QFA.ACII.FLIA is a financial planning manager with CityLife Galway
Phone: 087 2482639
Email: niall@citylifegalway.ie
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