Morgan Housel lists 50 Unfortunate Truths About Investing from simple observations to warning signs of bad advice from media experts. Here are some of my favorites.
By MORGAN HOUSEL, originally posted at THE MOTLEY FOOL
Sorry but…
1. Saying "I'll be greedy when others are fearful" is much easier than actually doing it.
2. The gulf between a great company and a great investment can be extraordinary.
3. Markets go through at least one big pullback every year, and one massive one every decade. Get used to it. It's just what they do.
4. There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds.
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10. Time-saving tip: Instead of trading penny stocks, just light your money on fire. Same for leveraged ETFs.
11. Not a single person in the world knows what the market will do in the short run. End of story.
12. The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn't — his are much bigger.
13. You don't understand a big bank's balance sheet. The people running the place and their accountants don't either.
14. There will be seven to 10 recessions over the next 50 years. Don't act surprised when they come.
15. Thirty years ago, there was one hour of market TV per day. Today there's upwards of 18 hours. What changed isn't the volume of news, but the volume of drivel.
16. Warren Buffett's best returns were achieved when markets were much less competitive. It's doubtful anyone will ever match his 50-year record.
17. Most of what is taught about investing in school is theoretical nonsense. There are very few rich professors.
18. The more someone is on TV, the less likely his or her predictions are to come true. (U.C. Berkeley psychologist Phil Tetlock has data on this).
19. Related: Trust no one who is on CNBC more than twice a week.
20. The market doesn't care how much you paid for a stock. Or your house. Or what you think is a "fair" price.
21. The majority of market news is not only useless, but also harmful to your financial health.
22. Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don't even try.
23. How much experience a money manager has doesn't tell you much. You can underperform the market for an entire career. And many have.
24. The decline of trading costs is one of the worst things to happen to investors, as it made frequent trading possible. High transaction costs used to cause people to think hard before they acted.
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27. When someone mentions charts, moving averages, head-and-shoulders patterns, or resistance levels, walk away.
28. The phrase "double-dip recession" was mentioned 10.8 million times in 2010 and 2011, according to Google. It never came. There were virtually no mentions of "financial collapse" in 2006 and 2007. It did come.
29. The real interest rate on 20-year Treasuries is negative, and investors are plowing money into them. Fear can be a much stronger force than arithmetic.
30. The book Where Are the Customers' Yachts? was written in 1940, and most still haven't figured out that financial advisors don't have their best interest at heart.
31. The low-cost index fund is one of the most useful financial inventions in history. Boring but beautiful.
32. The best investors in the world have more of an edge in psychology than in finance.
33. What markets do day to day is overwhelmingly driven by random chance. Ascribing explanations to short-term moves is like trying to explain lottery numbers.
34. For most, finding ways to save more money is more important than finding great investments.
35. If you have credit card debt and are thinking about investing in anything, stop. You will never beat 30% annual interest.
36. A large portion of share buybacks are just offsetting shares issued to management as compensation. Managers still tout the buybacks as "returning money to shareholders."
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41. For many, a house is a large liability masquerading as a safe asset.
42. The president has much less influence over the economy than people think.
43. However much money you think you'll need for retirement, double it. Now you're closer to reality.
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48. The bigger a merger is, the higher the odds it will be a flop. CEOs love empire-building by overpaying for companies.
49. Investments that offer little upside and big downside outnumber those with the opposite characteristics at least 10-to-1.
50. The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments. The most innovative, some of the worst.
This post originally appeared at The Motley Fool. Copyright 2013.
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