It’s been 20 years since I received my securities license and began working in the financial markets.  I’ve never denied my desire to reach financial independence.  I always considered becoming wealthy a worthy goal for I don’t aspire “riches” for the millionaire status, I just want the freedom that comes with it.

For the first 3 years of my career, I worked in a high paced trading firm in the early 90s.  Although I found myself to be on a steep learning curve, I forced myself to learn the basics that apply to all financial markets.  Learning how to read a market by understanding simple concepts like  bid/offer/size, volume, insider interest and the like, taught me more about the practical aspects of supply and demand than anything else. The funny thing is that you can walk into any store and witness how markets work.

If you would just learn to master and become brilliant at the fundamentals you’ll do well.  For you see success in all it’s forms consists of simple fundamentals.  People always try to get around them and this (trying to take shortcuts) is how people end up shooting themselves in the foot time and time again.

I was lucky to find a few very successful mentors that taught a few basics on how the world markets work.  Yes, as confusing as it seems there is a rhythm and flow to the markets.  And, although you can’t predict exacts, there are things you can usually count on.

One of those things you can count on is human emotions/passion.  You’ve heard that fear and greed rule human emotions.  Nowhere else is this better witnessed than in the capital markets.  During bull markets everyone becomes an expert and it’s a matter of “how much more”.  No thought is given to the consequences of such recklessness.  Then, once the downturn begins, we need someone to blame.  See Congressional hearings.  I always get a good laugh out of people debating politics when politics has really become no more than adults arguing about how much more they know than the person they’re fighting with.

Here are 10 Lifelong Investing Lessons I’ve learned over the last 20 years.  These aren’t necessarily mine.  You’ve most likely heard them before.  But these are the one’s that have never failed me.

1. On Emotions and Markets – Never forget this; we act the same way to similar events all the time. Very seldom do people stop and ask, “Does this actually make sense?”  “What will the long-term outcome be if I am wrong?”  And, everyone is in fact wrong, at times.

2. You Have To Have A Plan and Stick To The Plan – What is The Plan?  The Plan is what you are doing every day and right now to get you to  where you want to go in as quick a timeframe as possible.  For example, what are the top 5 things you want to accomplish in the next year, the next 3 years, the next 5 years?  If you don’t know, then you don’t have a Plan.  If you’d like an example of a Plan, I’d suggest checking out How To Achieve Financial Independence

3. The Best Time To Sell Any Investment Is When Everyone Wants To Buy It and The Public Has Lost Their Collective Minds – and when they tell you that you’re a freaking genius.  I remember when I was having my last home appraised and there were people wanting to pay 10% over the appraised value.  It had gone up 30% the last 12 months (something totally unsustainable).  How did I “know” this was unsustainable?  By simply comparing the market value increase to the change in median wages and the increase in stated W-2 loans being underwritten.

4. Don’t Hang Yourself To An Ideology – Markets cycle in and out of favor.  They trend up, get really crazily overvalued, make people think they’re a genius for a while and then, JUST when you think you have it all figured out (like housing never goes down), they become really deviant and do the exact opposite.  I’ve seen more people cling onto theories, ideologies (stocks always go up, housing never goes down, etc) and go broke because they simply couldn’t let go of their need to be right.  You have to be willing to abandon your assumptions and read what the market is telling you today.  Being flexible is good for your Plan.

5. You Never Know Everything – I’ve done a pretty good of learning how to detect hype and nonsensical information.  But I also try to keep an open mind and learn from my peers, especially those who are trained in particular niches and sectors.  If you can’t admit that you don’t know, then you won’t know how to help yourself.

6. Sometimes Not Losing Money Is The Best Strategy – This isn’t a particularly easy time to make money in the markets.  Did you know that the Dow Jones Industrial Average and S&P 500 are approximately where they were in 1998 (Refer to #4) and the best place to make money since 1998 was not in common stocks?   This is a time where staying above water is the #1 priority.

7. Things Are Never As Bad Or As Good As They Seem – When I realized this I was able to relax and breathe.  I’ve seen some pretty volatile markets.  Whether it was the super bull market in tech stocks, or the recent bear market in housing and stocks, people come up with some pretty crazy things to get you to believe. Refer to # 1.

8. You Have to Develop Confidence In Your Own Ability or Find Someone You Can Trust Until You Do – Being successful was always important to me.  It was never a matter of desire as I always had ambition.  Yet, when I first started out, I was clueless until I met my first mentor, Roger Arnold.  He taught me 3 simple fundamentals that have allowed me to figure things out on my own.  The biggest thing I am able to figure out now is when I’m wrong.

9. Don’t Invest When You Are Uncertain – You have a fully functioning mind and gut.  Whenever you’re uncertain (which usually comes from a lack of a Plan) you’re going to feel uneasy.  Also, if you don’t feel like you trust someone, that’s your gut working for you.  Learn to trust it.  When you do, it adds a lot to #8, developing your confidence.

10. Whenever Everyone Agrees With You, You’re Usually Wrong – Those of you who have read The Wise Buck for any period of time, know that I have owned gold for many years.  One of the main reasons I bought gold back in 2001-2 was that gold had been completely written off as an asset class/investment.  Although each year, it has become more and more popular, gold remains off most investor’s radar screens.  What most don’t realize is that gold (bullion) has consistently outperformed most asset classes over the last 10 years, year after year.  There will come a time in the future (very probable) when the Dow-Gold ratio is between 1-5 and everyone will agree that gold is good.  That is when it’s will be time to move on.

If you would like, please share some of your own investing lessons in the comments below.

No related posts.