Investing does not have to be complex.
Many people make the process more complicated than it should be.
Events such as pandemics and economic crises do result in volatility in stock markets.
But investors need to learn how to manage their fluctuations and stay true to their investment philosophy.
One method I use to remind myself to stay focused is to take advice from wise and experienced investors.
Here are five quotes from famous investment experts that can help steer you towards a profitable investment outcome.
1. Investment is most intelligent when it is most business-like – Benjamin Graham
Benjamin Graham is known as the father of value investing.
His seminal book on investing, The Intelligent Investor, was written in 1949 and is still in print today.
He believes that an investor should thoroughly analyse a stock to ensure that it provides “safety of principal” (i.e. low risk of losing money) and an “adequate return”.
Because ultimately, how well the company does financially will determine how well its stock performs.
Simply put – if the business does well, the share price will eventually follow.
2. Activity is the enemy of investment returns – Warren Buffett
Warren Buffett needs no introduction.
The investment guru, also known as the Oracle of Omaha, has chalked up an impressive record of investment returns spanning over five decades.
He believes that frenetic activity is the enemy of the investor.
This is because the constant buying and selling incur brokerage fees that act like sandpaper, slowly eroding your investment returns.
Constant activity also means you are trying to time your entry and exit into the market.
It’s a nearly impossible feat to guess where the market is headed in the short-term, hence this frantic activity ends up being a fool’s game.
Instead, investors should select great companies to stay vested in over the long-term.
3. You can’t predict, but you can prepare – Howard Marks
Howard Marks is the co-chairman of Oaktree Capital Management, the largest investor in distressed securities in the world.
He believes that trying to predict when market crashes or booms will occur is futile.
Take the COVID-19 pandemic for instance.
Almost no one saw the crisis coming or managed to predict it with reasonable accuracy.
However, what you can do is position yourself to prepare for such events.
One method is to ensure your investment portfolio contains companies that remain resilient through economic cycles and have a track record of bouncing back from crises.
Another is to keep some cash handy to take advantage of low valuations when a crash does occur.
4. Markets will never be efficient because of human nature – Seth Klarman
Seth Klarman is the fund manager of Baupost Group, a value-oriented hedge fund.
Klarman believes that stock markets can never be truly efficient and price securities fairly.
That’s because humans will always be filled with emotions such as greed and fear.
As such, stock markets will be periodically punctuated by bursts of emotion, leading to sharp booms and devastating busts.
When these events occur, securities will be priced “wrongly”, providing opportunities for savvy investors to swoop in to take advantage of these mispricings.
And because humans can never shed their emotions entirely, stock markets will never behave like machines and will always throw up opportunities for the Smart Investor.
5. A great business at a fair price is superior to a fair business at a great price – Charlie Munger
Charlie Munger is Warren Buffett’s right-hand man and also a great investor in his own right.
He was the one who encouraged Buffett to evolve his style from owning “cigar butts”, that is, businesses with just one “puff” left that can cough up a profit for the investor — to owning quality companies that have enduring competitive moats.
Munger believes that it’s far better to own an excellent business with superior economic characteristics rather than one that is just mediocre.
Investors should be willing to pay a premium to own such great businesses and not shy away from them.
These strong businesses can produce more superior long-term returns than the mediocre ones even though the latter may be selling at “cheap” valuations.
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Disclaimer: Royston Yang owns shares in Apple and Keppel DC REIT.
