Ray Dalio: “The biggest mistake investors make is to believe that what happened in the recent past is likely to persist.”
Tom Russo: “I think…it’s the inability to do nothing for a long period of time. The inability to do nothing is what most people get tripped up on.”
Howard Marks: (1) “I think it is risk consciousness. I think that the great accomplishment in investing is not making a lot of money, but is making a lot of money with less-than-commensurate risk. So you have to understand risk and be very conscious of it and control it and know it when you see it.” (2) “The main mistake that people make , be they individual or professionals, is that they allow themselves to be affected by emotion. Emotion is the enemy.”
The most common reason investors fail to achieve satisfactory results over the long term has more to do with temperament than ability. Quite simply, people often want to do today what they wish they had done five years ago. Time and again investors choose to buy after prices have gone up and to sell after prices have gone down. What is true for individual stocks is also true for funds and even asset classes.
Investors often want to purchase funds and asset classes that have strong performance in recent periods and sell funds and asset classes that have lagged. Such behavior reflects emotion rather than rationality. Investors should not be optimistic or pessimistic but realistic, taking into account the key important and knowable factors, both positive and negative, that can affect their returns over time. In our view, durable businesses run by able and honest managers with strong competitive moats, reasonably attainable growth prospects and high returns on capital are the best vehicles for compounding wealth, provided they are purchased in a disciplined fashion and held for the long term. Moving in and out of stocks, funds, investment styles, or asset classes based on what has already gone up or down generally results in unsatisfactory long-term returns.
“The three most common investing mistakes relate to the price you pay, the management team you essentially join when you invest in a company, and your failure to understand the future economics of the business you’re considering investing in.”-Michael Shearn