3 Simple Pieces of Advice I’ve Received About Investing

This week I had lunch with my first boss who gave me my start in the investment business. I learned a lot from him in my first few years and it’s amazing how often I go back to some of the basic principles he taught me.

This got me thinking about some of the very simple, yet worthwhile pieces of advice about investing that I’ve received over the years from past bosses or colleagues. Here are three that came to mind:

1. “Always have a willingness to say no. You don’t have to have an opinion about everything or a position in everything.” Is gold bottoming here? Is it time to buy industrials? Should we get out of European stocks here? Should we extend our bond duration? It’s amazing the amount of potential options investors have these days in terms of markets, asset classes, sectors and products. Every day there’s a seemingly endless amount of investment moves you could be making (or should be making according to some). I’ve learned that it’s okay to allow opportunities to pass if they don’t make sense for my time horizon or my comfort level. I don’t need to try to pick every bottom, get in on every trend or miss every 5% correction. Most of the goings-on in the markets fall under the ‘interesting’ category and not the ‘actionable’ one.

2. “Don’t waste your time trying to game interest rates on a consistent basis. There are far too many variables to consider. You’re not just trying to outguess the market; you also have to worry about governments, central banks, inflation expectations, economic growth, supply & demand…” I’m not saying it’s impossible for certain people to predict interest rates. But I’ve seen far too many economists, central bankers, fund managers, advisors, consultants and individual investors fail at it to know it’s not something that I’m particularly well suited for. It’s not that I don’t pay attention to rates. Of course I do. But I’ve always been on the side of allocating assets in my career, not making binary macro calls about the direction of rates. Playing the catalyst game is no joke. Some people can do this well. Most who try will fail. It’s not something I find adds much value to my process.

3. “Most of the stuff you learn now won’t have any meaning for a number of years. And many of the best lessons you’ll get from the markets are those things you’ll eventually un-learn.” I even reminded my old boss of this one this week because it’s so true how much stuff I’ve learned that didn’t really kick in until a few years down the road. I told him I couldn’t believe how much clearer some of the things he taught me have become after gaining more experience and knowledge about the way things work in the finance industry. Some things don’t have meaning until you’re able to provide situational context around them through your experiences.

The un-learning process is one of the things I wish I would have figured out sooner. This means having a willingness to let go of past thoughts and ideas when new evidence or experience comes to light. It means figuring out how to be intellectually honest with yourself about how things work and never becoming too overconfident in your abilities.

The whole point of exerience to me is figuring out what doesn’t work. It’s an under-rated skill to be able to sift through all of the noise, jargon, products, sales tactics, different markets and investment strategies and very quickly come to the realization about what to immediately ignore. Focusing on what you control sounds like very boilerplate advice, but it works. It’s also not always so easy to pull off.

Further Reading:
Observations From a Decade in the Investment Business
Un-Learning From Peter Bernstein

Here’s the stuff I’ve been reading this week:

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My new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, is out now.


What's been said:

Discussions found on the web
  1. Simon Cunningham commented on Aug 21

    Seeing the MarketWatch piece this morning was fun. Refreshing change of message for that site as well.

    • Ben commented on Aug 21

      Thanks Simon. Anora is one of their best reporters so I’m glad I got to sit down with her.

  2. Paul LaVanway commented on Aug 21

    Good advice. Similarly, I’ve always found great truth in that classic “Charley Mungerism,” that “If you can get good at destroying your own wrong ideas, that is a great gift.”

    • Ben commented on Aug 21

      One of my favorite quotes of his. Not an easy thing to do either.

  3. Dividend Growth Investor commented on Aug 21

    Congratulations on the Market Watch feature. I look forward to reading your site every day!

    • Ben commented on Aug 21

      Thanks. Much appreciated.

  4. No Nonsense Landlord commented on Aug 21

    Great job to get listed on Market Watch. Someday, maybe my blog will too…

    You do have a lot of great points in this blog post.

    Far too many investors have a ‘need’ to buy something now, rather than wait fore a solid opportunity.
    Learning now will always benefit you, you may just not know when, or where. or even recognize that you gained from an earlier educational experience.

    • Ben commented on Aug 23

      That’s the double edged sword of having so many options these days…it always feels like you should be buying something else.

  5. MG commented on Aug 21

    Ben, I particularly like “And many of the best lessons you’ll get from the markets are those things you’ll eventually un-learn.”, which I have not seen written down before. It reminds me how in the early 1980’s it seemed every market analyst on earth held their breath until the weekly M1 number was released, because it was “known” to be the key to knowing inflation’s direction. Now nobody much cares about the M1, because it was a wrong-headed idea.

    • Ben commented on Aug 23

      It is funny how often the market “tells” change from cycle to cycle.

  6. Weekend Reading: Market Madness Edition commented on Aug 22

    […] Meet Ben Carlson; the author of one of Wall Street’s best-read blogs. Here’s Ben, on his A Wealth of Common Sense blog, discussing the three simple pieces of advice he’s ever received about investing. […]

  7. Jim Haygood commented on Aug 22

    “Don’t waste your time trying to game interest rates on a consistent basis.”

    You can say that again. I was just reviewing a simple trend model, which compares a 3-month moving average to a 12-month moving average to time bonds, stocks and gold. It works great for the latter two. But for bonds (20-year Treasuries), trend following actually subtracts value.

    Since Sep. 1968, buying and holding the 20-year Treasury returned 8.63%, whereas timing it as described returned 5.53% compounded. Even when calculated based only on the 33.3 years that the bond trend model was in the market, the compounded return was a subpar 7.66%.

    Short-term interest rates trend strongly owing to human intervention (e.g., the Fed’s “13 baby steps” rate hikes of 2004-2006). But long bonds seem to have some anti-trending characteristics.

    • Ben commented on Aug 23

      Interesting. I guess that makes sense considering bonds don’t get as much of the herd mentality buying and selling as the other too because of how they’re structured.