100 Things I Learned From Investing (1-25)

by Daniel Sparks

writer at

the Motley Fool

Read the rest of the series:

1. Beating the market is not easy. In fact, it’s very, very hard. Howard Marks highlights this difficulty:

“The problem is that extraordinary performance comes only from correct nonconsensus forecasts, but nonconsensus forecasts are hard to make, hard to make correctly and hard to act on.” – Howard Marks

2. Fundamental analysis can be learned, and it is indeed difficult, but good temperament is what separates the best investors from the pack.

3. Daniel Kahneman’s work on heuristics and biases (read: Thinking Fast and Slow) serves as the foundation of solid investor temperament and behavioral finance.

4. Warren Buffett reads for hours every day, and so should you.

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.” – Charlie Munger

5. There is no easy road. The moment you believe the road is easy is the moment you put yourself at great risk.

6. The psychological benefits of a low turnover portfolio are greater than the tax benefits.

7. An investment framework is necessary for successful investing.

8. The investment framework should not be law–but rather principles through which ideas and decisions should be filtered.

9. Read Charlie Munger to be a better decision maker.

10. Read Howard Marks to understand risk like never before.

11. Warren Buffett’s biography, Warren Buffett and the Business of Life, is a must-read for every investor.

12. Downside protection is the most important characteristic in any investment. As Jae Jun once told me in an interview:

“Make sure the downside is protected and then the upside will take care of itself.” – Jae Jun

(click to tweet the above quote)

13. Another thing Jae Jun told me:

“There is no such thing as getting rich quick. Fall in love with the process and journey, not the money.” – Jae Jun

14. What the stock’s price was yesterday doesn’t matter.

15. It’s one thing to say you’re a contrarian investor. It’s quite another thing to actually be a contrarian consistently.

16. You don’t have to be right more often than you are wrong to be a successful investor. What matters is the magnitude of your correctness (more on this topic here).

17. Good management means nothing if the business model is weak.

18. Find out where the cash is coming from and ensure that its source is sustainable.

19. Margin holds your cash hostage and forces you to miss out on great opportunities.

20. Ultimately, investor success over the long haul is determined by how well the investor manages risk.

21. Risk control is everything. One big mistake can wipe out years of work.

“The road to long-term investment success runs through risk control more than through aggressiveness. Over a full career, most investors’ results will be determined more by how many losers they have, and how bad they are, than by the greatness of their winners. Skilled risk control is the mark of the superior investor” – Howard Marks

22. Keep a journal to record your investment decisions. Evaluate yourself based on your process of arriving at those decisions, not based on the outcomes.

23. Get away from the news. How can you hear the signal without tuning out the noise?

24. Sometimes no action is the best action, or as Munger refers to such a task: embrace some good ole’ “assiduity”.

25. Read widely. Knowledge of a wide range of topics is more helpful for investors than expertise in one subject.

To be continued next week..

  • Shamapant


    I disagree with 15….quite the contrarian I am…I think one thing I’ve learned is that you don’t always need to be contrarian. By definition contrarian is harder, but often that is because the market is right too, you need to be contrarian AND you have to be correct. Also, you can find value where people know there’s value it just hasn’t been realized. Ex. I’d say people aren’t really extremely bearish on Ingram Micro, but it’s trading under book and value investors think there’s value to be realized.

  • You are indeed quite the contrarian :). Haha–No, actually I totally understand what you mean. #1 kind of took care of #15. I like the way you put it. Thanks for the good feedback.

  • Your list is thought provoking. Each item gives me something to evaluate and fine tune my process of evaluating this whole investing process. I’ve written just a few posts on investing, mostly because I am trying to pass on to my kids what I am learning and they do me the honor of reading it. 🙂 The few guest posts of yours I have read here have been well worth my time and helpful for my effort.

  • frankiethepunk

    Daniel, Thanks for the list and the reading recommendations.

    I am a huge Buffet fan. I have tested some of his theories and found him to be 1000% right. One of the most profound truths that he preaches is to buy a stock and hold onto it forever. For this reason I disagree with point 12, “Downside protection is the most important characteristic in any investment”. This is more of a trading technique than an investment technique. In fact, Buffet has cautioned, “You shouldn’t own common stocks if a 50 per cent decrease in their value in a short period of time would cause you acute distress”. He also admonishes, “don’t even think of owning a stock for 10 minutes if you don’t intend on holding it for 10 years”.

    However, I do believe Howard Marks is right, “Risk control is everything” and the investor can control this risk by not taking too large a position in any one stock. On this point I agree, but also disagree with Buffet. “Diversification is a protection against ignorance.” Buffet argues for a concentrated approach. But, the fact is the vast majority of investors, including myself do not have the intellectual firepower, experience or understanding of their investments that somebody in Buffet’s class has. Unless you are an investment genius like Buffet, it is wise to be wary of large positions in your portfolio.

    As for the issue of contrary investing. For years, I did not really understand this concept well. Intelligent contrarianism is not about doing the opposite of what everybody else is doing. Some time the market is right. For example, if you had purchased Lehman stock when it was selling in the single digits merely because you were trying to practice the art of contrarianism, you would have clearly been a fool for doing so. And there are many situations that are similar. Quite often a stock is trading at low valuations for good reason.

    Effective contrary, boils down to being able to think for oneself and not following the crowd. But there has to be an insight or good reason for going against the grain.

    For example, about a year and a half ago, I was reading an article in the Financial Times of London about an Australian stock called Telstra. It was Australia’s equivalent of AT&T. It was a telecommunications stock in Australia had been a dog for years. If you looked at chart of its price action, it had done nothing except go down for 5 or 10 years. However, the article revealed a very succulent piece of news. The Australian government was going to pay Telstra 11 Billion Australian Dollars to access its Internet backbone to make high speed internet access available everywhere in Australia. To make the situation even more appealing I determined a few other facts. Firstly, I could buy it on the Pink Sheets under the symbol TLSYY. Secondly, the yield on the stock was 10%!!! Moreover, Telstra had a record of increasing its dividend regularly over the past 10 years.

    I couldn’t believe it! I wasn’t a telecommunications analyst -let alone an expert in Australian stocks, but this story was just too compelling to ignore.

    So I accessed as much information I could about the company I could, given my limited resources – remember I’m not a professional investor. All I had to go on was a REUTERS research report – which told me the company was a going concern but other than that did not give me much guidance.

    I was however, able to establish through the financial times, that yes indeed, the Australian Government and its Senate had sanctioned to give this money to Telstra. So I bought the stock. My rationalization, was even if the stock did nothing but stay flat, the 10% yield was a very compelling reason to buy the stock. And guess what happened? Absolutely nothing! In fact, the stock dropped temporarily by 25%! And for months afterwards, it just languished around same level. I was flabbergasted! I couldn’t see how the market could ignore such a compelling story. But hey, I was being paid to wait so I forgot about it. A year and a half later, I went back and had a look at the stock. It had appreciated ever so slowly over a year and a half by 50%!

    So the moral of the story is that the market does not always behave rationally. Contrary thinking is about evaluating a situation and thinking for oneself. Its not about a knee jerk opposite reaction to the market just for the sake of it. Its a good idea to have a good reason to go against the grain, but the fact is there are lots of interesting situations that can benefit from “contrary thinking”, or as I like to say, thinking for yourself.

  • Thanks Laura. That is the list’s intention: To be thought provoking. We all have different investment styles but these are some of the lessons that have really made an impact on my investing along the way.

  • frankiethepunk,

    Always good to hear from you.

    When I refer to downside protection, the volatility of the stock isn’t even much of a consideration for me. When I think of downside protection I’m thinking of the business itself. This goes in line with Buffett’s “margin of safety.” I will never buy a stock unless I feel it is undervalued. The fact that the business is undervalued, to me, means their is long-term downside protection. In the long-term the stock always follows the business. But in the short-term you never know what will happen. Downside protection, by no means, refers to stock price volatility. It would be impossible to find that sort of consistent downside protection.

    As for contrarian thinking . . . you are right, it would be ridiculous to feel that just because your thinking differently than others that it makes you right. You pretty much defined exactly what I think contrarian thinking is. But I believe every investment requires contrarian thinking. Because if you are buying a stock and you believe it is undervalued, then that means the market must disagree with you. Otherwise, it would not be undervalued.

  • @ frankiethepunk,

    Good call on Telstra, but I wouldn’t categorise that as a buy and hold forever. Investors tend to churn too quickly. By holding longer, the returns can become better as time fixes short term market jitters.

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