In the world of investing, it’s often tempting to think that there’s some secret formula or insider knowledge that separates successful investors from the rest. This is where looking at legendary investors can help.
If you look at the wisdom shared by some of the most successful investors of all time, you will find that their principles are surprisingly simple.
These pillars of investing wisdom — patience, knowledge, skill, humility, and discipline, among others —are not exclusive to success in the markets.
These are ideas that have been shared by philosophers for thousands of years.
That’s exactly why I’ve been drawn to the stock market since I was a teenager. Whether you learn about investing or life, you can apply everything you learn in investing and life.
More importantly, we can cultivate an investment mindset that goes beyond making money, focusing instead on long-term growth, risk management, and continuous learning.
In this article, I’m sharing 8 short lessons I’ve learned from 8 legendary investors.
Applying these lessons does not guarantee financial success. But they do provide a solid foundation for becoming a wiser investor and person.
You Don’t Need to Be a Genius to Succeed in the Market
Warren Buffett once said:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.”
This quote debunks the myth that successful investing is a game only for the intellectually gifted and geniuses of the world.
Instead, traits like patience, discipline, and emotional stability often play a more crucial role in investment success. It so happens that you can learn these traits.
Investing Is a Combination of Economics and Psychology
As the successful value investor Seth Klarman puts it:
“Investing is the intersection of economics and psychology.”
Successful investing isn’t just about understanding financial statements and market trends.
It’s also about understanding human behavior, including your own. Being aware of cognitive biases and emotional influences can help you make more rational and profitable decisions.
This is also true in other areas of life. To truly succeed in any field, you need more than domain-specific knowledge.
The Market Is a Weighing Machine
The founder of value investing, Ben Graham, famously said:
“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
This insight encourages us to look beyond the day-to-day ups and downs of the market. Instead, Graham tells us to focus on an investment’s underlying value – its true worth.
Intrinsic value is determined by concrete factors like a company’s earnings, assets, and dividends.
While these may not always reflect in the stock’s current price due to market sentiments or economic conditions, they ultimately dictate the stock’s long-term performance.
Put Your Money Where Your Mouth Is
The first truly famous hedge fund manager, George Soros, said:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
There are many imaginary millionaires. “Bro, I knew Tesla stock would blow up!” Congratulations! If you didn’t execute on your knowledge, you would not make money whatsoever.
That’s one way to interpret Soros’ quote. If you have conviction in an investing strategy or a stock pick, you can only make money if you take action.
Saving and Investing Pays Off Long-Term
Peter Lynch, one of the most successful fund managers on Wall Street, once said:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”
Lynch is spot on. A person who earns a lot but spends it all will not build wealth.
This is why it’s not enough to just earn a lot of money; one must also save diligently and invest wisely. In fact, I think the latter is more important.
Instead of focusing on maximizing your income, focus on developing solid financial habits. This means living within your means, setting aside a portion of your income regularly for future needs, and making informed investment decisions.
Simply put, it’s the art of making your money work for you, even when you’re not working.
Don’t Let Fear Paralyze You
Cathie Wood, founder of Ark Invest, who’s famous for her growth investing strategy, said:
“The strongest bull markets I’ve been in are built on walls of worry.”
This underscores that periods of uncertainty and fear often present the best investment opportunities.
Some of the best opportunities to invest come during or after periods of market downturn or investor pessimism. When fear drives prices down, it can create chances to buy stocks at discounted prices.
However, this strategy requires conviction, patience, and knowledge. Buying bad stocks at low prices is a sure way to lose money.
FOMO Can Destroy Your Wealth
Dawn Fitzpatrick, the Chief Investment Officer of Soros Fund Management, warned about the fear of missing out on the stock market:
“The amount of damage that FOMO does to the average investor is big.”
If you spend a lot of time on social media or YouTube, it’s easy to get swept up in the latest investment trends or fear missing out on the “next big thing.”
But FOMO leads to ill-informed choices. Sound investing requires you to execute a solid strategy that’s based on logic, not on the madness of the crowd.
So resist the temptation to jump on every investment bandwagon. Instead, take the time to do your research, understand your risk tolerance, and make informed decisions that align with your long-term financial goals.
Remember, in investing, patience, and prudence often pay off more than haste.
Always Know What You Don’t Know
And then finally, some great advice from the legendary Charlie Munger:
“Knowing what you don’t know is more useful than being brilliant.”
Munger emphasizes the importance of humility and continuous learning in investing.
Recognizing the limits of your knowledge will not only keep you grounded, but it will also help you to avoid money mistakes. Munger and Buffett have built their entire careers on a simple idea: Stay away from the things you don’t understand.
Sometimes that means you miss out on an opportunity. And that’s okay. But this principle can also inspire you to learn more. That’s more important.
