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A little while ago, I started an occasional series I've called 'Friday Fundamentals'… taking investing back to first principles to help new investors understand — and remind experienced investors of — the simple truths of investing.
Today, I'm going to share some bullet points I've pulled together that I'm calling 'Investing advice for my younger self' — I hope it helps!
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When I started investing, I wanted to know the answers to all of the questions.
I gathered data, computed ratios, dived deeper.
It gave me a solid foundation… but it's not how I invest today.
What would I tell my younger self?
To still do that work, to give yourself a foundation. But move on quickly, thereafter.
To what? I'm glad you asked.
Do the simple stuff that puts you on the right track
Work hard. Save hard. Diversify. Add regularly.
Boring? Sure. But foundationally necessary? You bet!
Understand the big ideas
The truly big ideas help refine your investment universe really quickly: balance sheet strength, competitive advantage, growth runway, resilience. A few more, besides. But not many.
Apply the 80/20 rule
An extension of the above, really. Discard bad ideas quickly. Discard 'I don't know' ideas just as quickly.
You don't have to know all of the answers to all of the questions. You don't need to have a view on every company.
And once you've answered the most important questions about a company, you've probably got 95% of the information you need to make an investment decision.
Focus on quality
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett
Why? Because a fair company doesn't have the ability to grow profits at attractive rates for a long time.
A wonderful company does.
Be patient
You only get the benefits of compounding if you let it happen. Sounds obvious, but too many people just can't leave well enough alone.
Stop rushing. Buy well, then let it happen.
Impatience is the enemy of successful investing.
Expect volatility… and long periods of underperformance
Amazon shares (I own) were lower in December 2022 than in April 2019. Then more than doubled in 16 months.
The ASX fell 38% when COVID hit, and is now near an all-time high
Don't fight it… ride the wave.
Don't go back to Square 1
Another one from Buffett. Betting the farm is dumb. Risking everything you've built up is dumb. This isn't a computer game. You don't get more lives, or to respawn at the last checkpoint.
Aesop was right. The tortoise wins.
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I hope that's helpful. Have a great weekend!
Fool on!
