“Wealth isn’t primarily determined by investment performance, but by investment behavior.” – Nick Murray
I’m convinced that the majority of the behavioral problems that affect most individual and professional investors are all about perspective, not implementing the wrong tactics. There will always be more tactics presented to you every single day, but most of them will be useless by the end of the week.
Yes, you need to know and understand the basics to create an investment portfolio but to truly succeed and keep your behavior under control requires the correct perspective on the markets and you own innate biases.
Simple Wealth, Inevitable Wealth by Nick Murray is one of the best books I’ve read on gaining the right long-term perspective as an investor. One of my financial advisor friends suggested I read Murray’s book and although I’m a little late to discover this gem, I’m fully on the bandwagon at this point.
What follows are some of the best lines from the book along with my thoughts.
Murray on behavior:
“Exceptional results in equity investing proceed from avoiding a few really awful mistakes.”
“The importance of individual fund selection is relatively small, when compared to the issue of how the investor herself behaves.”
While I feel that certain aspects of portfolio construction are important – keeping your costs low, global diversification, asset allocation, etc. – these things are all worthless if you don’t behave. All of the advantages you gain from these tools can be wiped out by a lack of having a process based on patience and discipline. Investor behavior is far and away the most important determining factor when building wealth.
Murray on risk:
“On which end of your investing lifetime do you want your insecurity, so that you can have security at the other end?”
“The greatest long-term financial risk isn’t losing your money. It’s outliving your money.”
“There is no such thing as no risk. There’s only this choice of what to risk, and when to risk it.”
How much risk you are willing and able to take is something investors are forced to grapple with every single time the market goes against them. While it would be nice to earn a risk-less return, it simply does not exist. There are risks to every investment decision you make. You must develop an understanding of the difference between your short-term nervousness with the markets and your long-term desire to achieve financial freedom.
Murray on being wealthy:
“No matter how much money you have, if you’re still worried, you aren’t wealthy.”
Wealth means different things to different people. It’s not just your salary or your net worth or how many things you own. It’s also about your anxiety about money and your ability to be comfortable with what you have. There’s no right or wrong answer for how much is enough. It all depends on personal circumstances and perception.
I’m a sucker for a good analogy, especially when it comes to investing. On the cover of Simple Wealth, Inevitable Wealth there is a picture of a tree. Murray uses the tree as his analogy for a long-term mindset when investing and I absolutely love the analogy:
“You plant it in the earth, and a wonderful force of nature causes it to take root, and to grow. You don’t have to do much with it: the air and the water and the nutrients it needs are all around the tree, and it knows how to use them.
You don’t dig it up every 90 days to check on its progress. (Nothing much will have changed in that brief time, and you might harm the tree). You don’t uproot the tree and store it in your garage over the winter, to protect it from what you regard as bad weather. (Though its leaves fall and it stops growing for a season, the tree itself does not die. And even leafless, the tree is still producing oxygen, without which you and I could not live.)
Give the tree enough room, enough light, and enough time. Then leave it pretty much alone. It will give you back air and shade and beauty as it grows – and will go on doing so for your children, after you’re gone.”
I highly recommend this book.
Simple Wealth, Inevitable Wealth
Mr. Murray ought to pay you a commission because you have just sold me on his book lol 😀 Great review. I understand all the points you brought up and would like to learn more about investor behavior. All successful investors have a couple things in common if nothing else: discipline, and the right temperament, so they are able to see the bigger picture 🙂
Thanks…I’ll see if I can get some royalty checks. Read this one along with Your Money & Your Brain and Thinking, Fast & Slow. Best ones I’ve found on biases and behavior.
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