Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Gold Price Spikes to $1,467.50/oz on Computer Glitch? - 26th Nov 14
Gold - So Bad It's Good: Surviving 2014 - 26th Nov 14
TrueShopping.co.uk Real Customer Experience Review - Online Shopping Lessons - 26th Nov 14
Is There A New Global Consensus About Cheating Investors To Reboot Employment? - 26th Nov 14
EUR/USD – Currency Bulls Don’t Give Up - 26th Nov 14
Swiss Gold Referendum A Golden Opportunity for Switzerland - 25th Nov 14
Silver: What COT Analysis Tells Us - 25th Nov 14
Stock Market Big, Bold and Ugly - 25th Nov 14
U.S. Dollar Near Top? Gold and Silver Trading, Platinum Breakout Invalidation - 25th Nov 14
Buy Fear - Easily Pick Up Profits on Stock Market Dips - 25th Nov 14
The Islamic State Reshapes the Middle East - 25th Nov 14
Gold Price Forecast 2015 - 25th Nov 14
The Swiss Referendum On Gold: What’s Missing From The Debate - 25th Nov 14
Clash of Generations - Why Millennials Still Live at Home; Not Jobs, Student Debt, or Housing - 25th Nov 14
Stock Market Reminiscent of Pompeii - 25th Nov 14
Once Upon A Time There Were Philosopher Kings - 24th Nov 14
The 2014 Crude Oil Price Crash Explained - 24th Nov 14
China Stock Investing - Follow the Money! - 24th Nov 14
122 Tonnes of Gold Secretly Repatriated to Netherlands - 24th Nov 14
What Causes the U.S. Dollar to Move? - 24th Nov 14
Stock Market Indexes New Highs - Will Uptrend Extend Even Further? - 24th Nov 14
All Hail the King U.S. Dollar - Trend Forecast - 24th Nov 14
Where Is China Economy On The Map Exactly? - 24th Nov 14
Most of The World Economies Panic - Is The US Next? - 24th Nov 14
Stock Market Exhaustion Gap? - 24th Nov 14
Gold Golden Gains Come After The Pain - 24th Nov 14
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

Investors Need Strong Stomachs… Not Big Brains

InvestorEducation / Learning to Invest Nov 13, 2012 - 02:52 AM GMT

By: Investment_U

InvestorEducation

Best Financial Markets Analysis ArticleAlexander Green writes: It’s great fun to read heroic investment stories about individuals who made fortunes as a result of exceptional insights or sheer genius.

No one is better at telling these than Michael Lewis, the bestselling author who devotes much of his book, The Big Short, to Steve Eisman, a brilliant and eccentric hedge fund manager who made hundreds of millions in the recent financial crisis by buying credit default swaps on the triple-B-rated tranches (slices) of subprime mortgage bonds.


This is entertaining reading. But it won’t do much – if anything – to enhance your own investment prowess. Trades like these are complicated… and risky. A lot of investors don’t realize, for instance, that when you sell short mortgage bonds you have to cover the interest payments on them until you close out your position.

Sure, these jerry-rigged investments were bound to tank eventually. But as John Maynard Keynes once observed, “The market can stay irrational longer than you can stay solvent.” And that’s especially true when you’re all leveraged up.

A Lesson From Warren Buffett
Fortunately, you don’t need to take huge risks or boast a Mensa-like I.Q. to succeed at investing. All you need is a sensible, battle-tested investment system and the emotional fortitude to see it through. Just ask Warren Buffett.

At the Berkshire Hathaway shareholders’ meeting two years ago, he told the audience:

“If you are in the investment business and have an I.Q. of 150, sell 30 points to someone else. What you need instead is an emotional stability and inner peace about your decisions.”

How right he is. I know, because over a 16-year period, I worked with several hundred high-net-worth investors. The vast majority of these folks were plenty smart. After all, the affluent are usually either professionals (like doctors or lawyers) or business owners. You don’t find a lot of dummies in these categories.

Yet many stumbled as investors anyway. Why? Often it was because they didn’t have the calmness – what Buffett calls “emotional stability” – to stick with an investment discipline when the financial markets got rough and the news backdrop got scary.

It astonished me, for instance, that the very same people who regretted how they panicked after the market crash of 1987, bailed out after every dip and sell-off in the years that followed. Each time their emotional response – fear of loss – trumped their logical decision-making.

Ironically, on the initial client interview – where we talked about the likelihood of market volatility and the value of sticking with a discipline – these same folks were confident that they would use a future downturn as a buying opportunity. But when the merchandise actually went on sale, only one in 10 would step up to buy the bargains. Later, when the market was much higher and the danger had passed, they felt comfortable enough to put money to work again. (As Kurt Vonnegut would say, “And so it goes.”)

How to Avoid Following the Herd
How can you avoid this fate? With four steps:

•Number one, it’s your money. You should understand the basic fundamentals of investing. Many people lose confidence and panic because they simply don’t know what they’re doing. (If you need a refresher course, check out my book The Gone Fishin’ Portfolio.)
•Two, expect the unexpected. Look back at the history of the market. Waiting behind every bull market is a bear market. And behind every bear market is yet another bull market. That’s just the nature of things. So don’t be surprised when it happens.
•Three, take the long view. If you’re investing your long-term-growth capital for use in 2020, for instance, is it really important what the market does this week, this month, or even this year?
•Lastly, understand that we are hardwired to react emotionally. When our ancestors on the plains of Africa heard a rustling in the bushes, they fled (even if it was just the wind). Those who shrugged it off and kept whistling didn’t leave as many descendants. But a fear response in the financial markets is not generally helpful. As investment legend Peter Lynch used to say, “If you’re going to panic, do it early.”

In short, the best rewards don’t generally accrue to the investors with the biggest brains. (Just ask the Nobel laureates who brought down Long-Term Capital Management.) Rather, they go to those with the strongest stomachs.

That’s a good thing to remember, especially when the markets are acting skittish, as they have recently.

Good Investing,

Source : http://www.investmentu.com/2012/November/strong-stomachs-not-big-brains.html

by Alexander Green , Oxford Club Investment Director Chairman, Investment

http://www.investmentu.com

Copyright © 1999 - 2012 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014