#1 “An investment in knowledge pays the best interest” – Benjamin Franklin
If you want to make money, you first need to know how to do it. And proper financial education is the first step.
We’ve also seen how many rich people lose their entire fortune overnight.
It’s been observed that a large percentage of lottery winners end up losing everything after a few years.
Investing in knowledge not only allows you to make money, it is essential to safeguarding your wealth.
#2 “Wide diversification is only required when investors do not understand what they are doing” – Warren Buffett
Warren Buffett also said that “risk comes from not knowing what you’re doing”.
The common advice given to investors is to diversify as widely as possible, so that you can reduce your risk.
But take a look at many of the most successful investors in the world… how many of them actually diversify widely?
#3 “Great investors need to have the right combination of intuition, business sense and investment talent” – Andrew Lo
Many people think that investing is just about the numbers. But by investing, you’re buying a piece of the company.
Hence, you’ll need to evaluate the business as a whole, in relation to the economy.
#4 “In the world of money and investing, you must learn to control your emotions” – Robert Kiyosaki
Many investors buy based on hype and sell when they are fearful.
They get depressed when they lose money, and motivated when they make some.
Hence, their decision-making might be clouded and they might hold onto a position longer than they should.
However, the best investors are able to emotionally disconnect themselves form the money.
This allows them to see the situation clearly and make “difficult” decisions easily.
#5 “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas” – Paul Samuelson
Incidentally, Warren Buffett also once said “our favourite holding period is forever”.
If a Nobel Prize winner and the world’s most successful investor are saying the same thing, you should listen to it.
#6 “Price is what you pay. Value is what you get” – Warren Buffett
Price does not always accurately reflect value. In fact, in life and in investing, it rarely is the case.
The market prices are influenced by many factors, such as imperfect information and changes in demand and supply, and these do not necessarily affect the intrinsic value of an asset.
#7 “The four most dangerous words in investing are: ‘this time it’s different’” – Sir John Templeton
This time it’s different – is the greatest lie ever told.
Albert Einstein defined insanity as “doing the same thing over and over again and expecting different results”.
If what you’re doing is the same as before, then this time will not be different.
To change your outcome, you must change the things you do.
Thomas Jefferson once said “if you want something you’ve never had, you must be willing to do something you’ve never done before”.
#8 “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case” – Robert Allen
Saving is a good habit, but don’t expect it to make you rich.
By leaving your money in the bank, you’re actually getting poorer every year because of the simple fact that the inflation rate is higher than your interest rate.
If you want to become wealthier (or at least maintain your level of wealth), you need to put your money in places where the returns are greater than (or equal to) the rate of inflation.
#9 “When buying shares, ask yourself, would you buy the whole company?” – Rene Rivkin
Because that is what you’re actually doing – buying a company.
If you have the intention of investing for the long term, you’ll need to know every aspect of the company you’re buying into.
#10 “The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell” – John Templeton
Most investors have it the other way around – they buy when optimistic and sell when the market is pessimistic.
They do this because they are operating from emotions.
However, during bad times, you can often purchase shares of great companies at a great discount, as everybody is frantically selling their shares, thus, driving the share prices down.
In fact, most millionaires are made during times of recession.
The people who are able to overcome their fears and emotions during tough times will emerge the winner when the crisis is over.