45 Years, 25 Lessons

A few weeks ago I attended the retirement party of someone I’ve called a dear friend for over 49 years. Long ago, we were both young financial advisors chasing similar career paths. We even migrated to independent businesses around the same time. His retirement prompted me to reflect with gratitude on all my opportunities and lessons from the past four decades.

At the outset of my career, my goal was (and still is) to help people find their freedoms: freedom of time, freedom of work, freedom of relationships, and freedom of purpose. Along the way, I’ve learned the nuances that come with working toward those freedoms. With that focus on freedom, here are my 25 lessons to help improve your investor behavior, which I’ve learned over the last 45 years of working with clients. Some may seem to repeat a bit in theme, but that’s only because they reinforce behaviors that I see as crucial.

1. Simplicity beats complexity. Complexity is harder to implement than simplicity, and it always sounds “smarter” and more attractive; but is it? My experience is simple when it comes to investing: simplicity beats complexity. Just because something sounds “smart” doesn’t mean it is.
2. Time in beats timing. Nobody has the skill to time the markets; doing so takes more luck than skill. Instead, the longer you let your investments compound, the better the result. Charlie Munger, Co-Chairman of Berkshire Hathaway, reminds us, “The first rule of compounding is to never interrupt it unnecessarily.”
3. Pay no attention to what legendary investors or billionaires think about the economy or markets. They don’t care about you, nor can they relate to you. Why would you take investment advice from them?
4. Self-control will make you more money than any other trait as an investor. Many people with connections, high positions, or a high IQ see miserable investment results. Your temperament is your most influential characteristic on your investment success.
5. Expect temporary, sharp declines in your portfolio. This is normal, so react wisely. On average, markets will temporarily decline 15–20% every 12–18 months. They typically decline 30–50% every 5–7 years, only to historically recover and move to new high levels. This is a pattern often repeated throughout history. Pay attention to how you respond to these declines, and take advantage of them. They may bring a great opportunity to buy.
6. Your goals are more important than the market’s outlook. Your personal situation should dictate how you invest more than the economic or market outlook. The markets don’t care about your desires. It’s up to you to focus on your goals and work toward them regardless of what the market is doing.
7. Risk management is an important consideration, but you must take risks to receive gain. Manage your risks, and minimize those you have control over, like debt.
8. Process is more important than outcome. Pay attention to what works for you over a long time. Successful investing requires making good decisions over and over. Know the difference between discipline and delusion. Learn from your mistakes, and apply those lessons to your process.
9. A good, solid strategy that you can stick to is better than a great strategy you can’t maintain. “Perfect is the enemy of good,” especially with investor behavior.
10. Forecasting the economy or the financial markets is impossible. Nobody can consistently predict the future. Ignore those who try.
11. Reading, studying and believing forecasting leads to an illusion of knowledge. The financial industry is filled with folks who forecast. Do your homework and look at their past predictions, but don’t believe everything you hear. Humility is a key trait for the successful investor.
12. It’s easier to explain than it is to predict. Hindsight is easy; foresight is rare. Focus on moving toward your goals, and stick with your plan. Measure your growth over a long time period. Focus on progress, not perfection.
13. Know what to avoid. Choice can be paralyzing. When you say yes to something, you’re saying no to something else. Stick with what you know and your prior commitments.
14. Develop habits around what works for you. Unsuccessful investors tend to have similar poor traits like trying to time or out-smart the market. Or they are overly confident, invest based on political beliefs, chase markets, or fall victim to behavioral missteps. Work on your investment behavior.
15. Markets are right over the long run, not necessarily the short term. Markets can be crazy in short spurts, but reality will eventually set in.
16. Every investor has blind spots. Know yourself, and don’t worry about other investors. Remember, comparison is the thief of joy.
17. A lengthy time horizon is the great equalizer of markets. The long run is the best hedge against most market risks.
18. Wise investment advice is ignored during market excesses. When markets are booming or crashing, the public tends not to listen to wise advice. They react either by jumping on board the hot trend or selling when prices have collapsed, releasing good assets at prices below their value. Fear of missing out during a boom time is self-inflicted. Fear of never recovering is also self-inflicted.
19. Understanding the difference between price and value is essential. Price is what you pay; value is what you get. All assets go through cycles when prices are above the assets’ value, as well as when they fall below their value. Understanding the difference is crucial.
20. Time solves short-term anxiety and market cycles. Short term is where most people live. Rarely do people live with a long-term perspective, yet it’s essential for investment success.
21. Market movement is all about people with different timeframes, goals, opinions and risk tolerances. There’s always a buyer and a seller; know which one you are. People and circumstances are not always rational, which can create opportunity.
22. Choosing the right investments can be hard. Extra points are not awarded to an investor based the degree of difficulty of an investment. It won’t pay off just because it was difficult to find and evaluate. Remember, simplicity beats complexity.
23. Optimists are better investors than pessimists. Pessimism sounds smart, but investing with that perspective rarely works. Pessimism is not an investment strategy. Optimists invest because they believe capital will be rewarded for the risk. Pessimists have a worry perspective; optimists an opportunity perspective. Pessimists focus on the past; optimists focus on the future.
24. Doing nothing with your portfolio is often the best decision. The opinion, conjecture and noise that bombards us is always trying to sell us something. It’s called negative selling, and it’s constant in our world. Ignore it.
25. Building wealth takes time. To quote Warren Buffett, “Nobody wants to get rich slowly.” It took time for Jeff Bezos to build his wealth too, but few recognize progress through that lens.

It is my hope that a few of these lessons will resonate with you and help you achieve your goal of improving your investor behavior and investment success.