Learning about investing from some of the all-time great investors can be both enlightening and confusing all at the same time. Enlightening because it always pays to stand on the shoulders of giants, but confusing because even the greatest investors disagree on the best ways to be successful in the markets.
An example from two of the most well-known and heavily quoted traders of all-time:
“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops.” – Paul Tudor Jones
“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world.” – Jesse Livermore
Great, so the best way to make big money is at the inflection points OR never try to call tops and bottoms. Got it. The thing is that there are tons of examples like this where certain strategies or opinions work well for some but not for others. It usually comes down to context and defining your time horizon, philosophy and appetite for risk.
Plus, investors would like to believe that there’s a secret to investing if they can only figure out that elusive one-liner that will spell it out for them. Intelligent investors know that there is no secret to successful investing.
Here are a few more conflicting narratives in the world of finance that you’re bound to hear if you pay attention long enough:
Money makes the world go ’round.
Money is the root of all evil.
Borrow debt when it’s available not when it’s needed.
There’s far too much debt in the system. This will not end well.
Pay attention to all economic and market data because everything matters.
Ignore the noise because nothing matters.
Cut your losers quickly but let your winners runs.
Rebalance by buying what’s down and selling what’s up.
The trend is your friend.
Don’t chase performance.
Diversification is a sign of ignorance.
Diversification is a true sign of intelligence by admitting you have no idea what’s going to happen in the future.
The stock market is not the economy.
Macro is the only thing that matters anymore.
We’re bottom’s up fundamental investors.
We look at things from a top down, macro perspective.
It’s impossible to beat the market on a consistent basis.
The markets are wildly inefficient.
I’ve never met a rich technician.
The best traders in the world use technical analysis.
Don’t fight the Fed.
The Fed blows asset bubbles and can’t be trusted.
You should be happy when a stock you bought goes down because you can buy more at lower prices.
Never average down in losing stocks.
Don’t try to catch a falling knife.
Buy when there’s blood in the streets.
Two Finance Phrases I Could Do Without