The 100 things I've learnt in investing

The 100 things I've learnt in investing – Part 2

The second in our series of lessons to invest by

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 21, 2012 10:00 am AEST

In my earlier post, I revealed the first 25 lessons I've learnt in investing. Just to recap, its important to step back and get some perspective every now and then. This list is my attempt to stop making the same mistakes I've made over and over again, and list the 100 lessons I've learnt in my investing career. Today's post contains the next 25 – watch out for parts 3 and 4 coming soon!

Number 26. Common sense is as uncommon in investing as it is in real life.

27. One of my favorite lessons from the poker table: Action is overrated. The best players (and investors) are constantly weighing the opportunities, but rarely are they moved to act.

28. A similar sentiment by Vanguard founder Jack Bogle: "Time is your friend; impulse is your enemy."

29. Selling is overrated. Reason No. 1: We often sell potential multibagger winners that would more than make up for our losers. The greater the quality of the business, the greater the danger of selling too early.

30. Selling is overrated. Reason No. 2: Outside of superannuation, selling kicks in voluntary taxes.

31. Selling is overrated. Reason No. 3: Fees.

32. In the hands of a good storyteller, almost every stock looks like a winner. Assume you're not hearing the whole story.

33. A question to ask before buying a stock: "What's my competitive advantage on this stock? Do I really know something the market doesn't?" The more specific the advantage, the better.

34. Sweat the big stuff.

35. Most of us are too enamored with "so you're saying there's a chance" opportunities. A Hail Mary belongs in the pew — not in the brokerage account.

36. A great rule of thumb for buying a house (the biggest single investment most of us will ever make), from fellow US Fool Buck Hartzell back in 2005: "If a home is selling for 150 times the monthly rent (or less), it's generally a good deal. If it's selling for more than 200 times the monthly rent of a comparable property, you're better off renting."

37. One of the toughest facts about investing is that a proper track record takes decades. Charlatans can do quite well for years and years. This is potentially dangerous for our assessment of ourselves and of others. Focusing on process, rather than results, helps.

38. Price matters. A great company can be a great big loss for you if you pay too much. Campbell Brothers Limited (ASX: CPB) is a great company, but was it really worth buying at $69 and above? (Hint: it's now trading at $54.81)

39. When applicable, use the tax system to your advantage. Investing through Australia's superannuation system can be a huge boon.

40. It is twice as easy to sound intelligent being pessimistic about the future as it is being optimistic. (In other words – watch out for the doomsayers.)

41. Greater risk theoretically yields greater reward, but a stupid investment is just a stupid investment.

42. Sir John Templeton's quote: "'This time it's different' are the four most expensive words in the investing language." The details change, but the basic storylines remain the same.

43. Investing shouldn't be improvised. Take the time to write a thoughtful script.

44. A key Buffett quote to understand: "Time is the friend of the wonderful company, the enemy of the mediocre." Why is this so? Partially because "you only find out who is swimming naked when the tide goes out." I really struggle to abide by this advice. I am often the Statue of Liberty when it comes to investing in inferior companies on the cheap: "Give me your tired, your poor, your huddled masses," etc.

45. Options promise big gains in short time periods. The problem? About three out of every four expire worthless. Contrast that with a stock, which doesn't expire.

46. Sorry, market timers: Take it from Peter Lynch, who said, "If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes." Or fellow investing great Ralph Wanger: "If you believe you or anyone else has a system that can predict the future of the stock market, the joke is on you." Or the godfather of value investing, Benjamin Graham: "It is absurd to think that the general public can ever make money out of market forecasts."

47. Keep a journal (or spreadsheet) of your stock picks, complete with your rationale for each move. Then look back on it to see if you were right. We may think we're good dressers, but all it takes is a high-school yearbook to prove otherwise.

48. Step aside, high blood pressure: Inflation is the silent killer. If your money is tied up in a bank account earning 1 or 2 or even 3%, then in real terms, your money is likely going backwards. Consider a high interest account, a term deposit or even better, shares in the banks themselves – Westpac Banking Corporation (ASX: WBC), Australian and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) or National Australia Bank (ASX: NAB), which currently pay dividend yields close to 10% when grossed up for franking credits.

49. Diversification doesn't entail making a whole bunch of dangerous investments and hoping they cancel out. That's the financial equivalent of stabbing your leg to cure your flu.

50. 13 Steps to Financial Freedom is excellent.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, originally written by Anand Chokkavelu appeared on fool.com. It has been updated by Mike King.

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