Investors Column – Don’t Take Anyone’s Word for It

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January 25, 2022 by Scott Crosby - Views: 67

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Investors Column – Don’t Take Anyone’s Word for It

Advice, as the old saying goes, is worth what you pay for it.  

That is especially true for investors.  Especially when you are just starting out, you will hear a flood of advice.  That advice usually falls into one of three categories.

First, if you have a 401k, your employer will probably have a financial advisor meet with you (and your co-workers), to make recommendations and to answer your questions.  If you have an IRA, that investment company’s Financial Advisor will make similar recommendations, and give similar answers to your questions.

Second, “friends” you never thought you had – including relatives – will be effusive beyond your wildest dreams, all telling you what they think you should do – including criticizing any thoughts you may express, opinions you may have, and actions you plan on taking, about what investment choices you are going to make in your investments.  Some of those criticisms are in earnest (however full of errors they might be), and some are just looking for an opportunity to discreetly deprive you of your life savings.

Third, will be a rare individual who will give you what is truly good advice on buying into some stock or mutual fund.

S236-1.jpgAll of it – even the good advice – should be disregarded.  Listen, learn any actual valid facts that the speaker may actually utter (likely in the first case, unlikely in the second case, possibly in the third case).  If you decide there is a kernel of truth in there somewhere, use that kernel as one of the criteria you put together in your own mind for future use when making your decisions about what to buy, and when, and what to sell, and when.  

When somebody talks about investing, just listen.  Say nothing.  Your investment choices are not a social topic for discussion.  Improving your judgement is personal.

In the first or third case, if the speaker is actually knowledgeable, ask any questions that come to mind, and consider what he says in his answer.  But volunteer nothing.  Make your decisions later, after you have had time to put your thoughts together.  Acting without careful thinking is literally the same as, “ready, fire, aim.”  

In the second case, smile, nod your head, wait until he runs down (or you can come up with some excuse), and get away.

In the third case, the person may actually have some knowledge that is (at that moment) a valid reason to buy a certain stock.  It may not be so valid in a month.  Do your research.

Be aware that the recommendations you will hear in the first case are a standard, set fare that the Financial Advisor gives you according to his company’s requirements.  He is not allowed to deviate from that standard.  They are generally the best options for the average person, who does not understand investing, tends to be risk-averse, and who is unlikely to ever develop his investing skills.

Developing investing skills requires (1) the ability to be an independent thinker (very scary to most people), (2) doing your own research, and (3) the determination to persevere as an investor when (a) investments turn out to be losers, and (b) through the market’s normal ups and downs.  

The ability to think independently is a life-long habit.  If not developed as a young child, it is much more difficult to learn later on.  Note to parents:  teach your young kids to “think for yourself” – now.  

The market goes up and down for many reasons – just like the weather.  But people tend to like stability, tranquility, and “normal” – whatever that is.  Learning to accept and navigate open seas that can occasionally get “interesting” in a small boat may “build character”, but most people choose to avoid the experience.  

Quitters are losers.  

Winners know that it takes time (and money) to develop good investing judgement.  

Sometimes, you have to sell a stock far sooner than you had wanted or expected.  Sometimes (and some years) you lose money.  But generally, purchasing stock for the long term is the easiest path to being a successful investor.  

Warren Buffet buys companies.  He definitely looks at the long-term – and he is over ninety years old.  

Warren Buffet is a good role model – to learn from.  But should you buy stock in his company, Berkshire-Hathaway?  Just one part of the answer:  what will happen to Berkshire-Hathaway when Warren Buffet dies?  Buffet says he has set things up to continue when he dies.  But so many of our fellow investors are undisciplined and quite emotional when it comes to buying and selling stock.  So it should be easy to guess what they will do at the news of Buffet’s death.  Watch the plunge from a safe distance.  There are other good stocks to consider for now.

Should you buy Berkshire-Hathaway stock when it hits rock bottom?  The answer is the same as for any company you may research:  what will the new Chairman of the Board, CEO, and Executive Team do?  How much will the company change?  All those people will have their own opinions about how to run the company, their own need to show their abilities, and their own recipe for success.  No matter who they are, those recipes will naturally differ from Buffet’s.  The changes may be better, or they may be worse, but how the company is run will change.  

Watch the news, and do your own research into the new Executive Team.  Then – maybe – buy the stock, based on your research.

Or maybe while doing your research, you will find a stock you think will perform better than Berkshire-Hathaway.  

If your parents never taught you:  “Think for yourself.”■

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