Here at The Smart Investor, we believe that everybody can learn how to invest, smartly. Some time ago, we once invited some of our readers to share their most important investing lessons. Some of these lessons are timeless, and applicable at any point during one’s investing journey.
The best part of these lessons? The simplicity of them.
These lessons are well within reach of a common investor. Here are 3 of the best lessons that we’d like to share with you:
1. A Simple Quote to Live By
“Enjoy the ride of market sunshine, persevere to ride out the market storm”
This quote is particularly apt at a time like this.
Just last week, the Straits Times Index (SGX: ^STI) closed at 2,960.98, the first time it has closed below 3,000 since late October 2018. As of Monday, 10 March, the STI is down over 18% from its recent peak.
Over the long-haul, the stock market rises more than it falls.
Between 2002 and 2016, a period of 15 years, there were a whopping 13 years where the STI declined 10% or more (from peak-to-trough). The frequent declines would seem to suggest the stock market did poorly over this period. But that’s the wrong conclusion. From its inception on 11 April 2002 up to the end of 2017, the STI rose around 7.5% per year.
Holding stocks for the long haul, through the sunshine and the storm, would have produced a positive gain.
2. It’s not what we do, but what we don’t do
Another great piece of advice from one of our readers:
“Do not touch stocks which we do not understand or are not familiar with.”
As investors, we can sometimes get caught up with the many opportunities that present themselves on a daily basis. Especially with the market as it is today.
Sometimes, we might feel the pressure to act on it, fearful that we might miss out on any upturn in the stock price.
However, we need to be disciplined in avoiding companies that we do not understand. It’s a simple, yet effective rule and one that Warren Buffett uses too.
The Berkshire Hathaway CEO says there’s one rule you should always avoid: Buying a stock merely because you think it’s going to increase in price. That’s because even the best investors aren’t able to predict how the market will perform.
Instead, you should invest in companies that you both understand and believe will offer long-term value.
3. Focus on the long term
The most surefire way to make money in the stock market is to buy shares of great businesses at reasonable prices and hold on to them for as long as they remain great businesses (or until you need the money).
If you do this, you’ll experience some volatility along the way, but over time you’ll produce excellent investment returns. And The Smart Investor is here to help you along the way.
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