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10 Investment Advice for New Investors from Jeremy Grantham

If you are new to investing, it must be difficult with so much noise clouding what is right and what is wrong. What I think is better for people embarking on their investment journey are truisms and aphorisms that will stick to you whether you are a speculator, trader, gambler or investor.

And who better to dispense them than Jeremy Grantham from GMO. I am a big fan of Jeremy Grantham and so are investors, traders from different schools. They pay attention to his quarterly company reports which are very well written and provide a lot of rational thoughts and decisions [You can read about them here].

Here are 10 great investment advice that new investors can learn from and always be on their mind

1. Believe in history

In investing Santayana is right: history repeats and repeats, and forget it at your peril. All bubbles break, all investment frenzies pass away.  You absolutely must ignore the vested interests of the industry and the inevitable cheerleaders who will assure you that this time it’s a new high plateau or a permanently higher level of productivity, even if that view comes from the Federal Reserve itself.

2. “Neither a lender nor a borrower be.”

If you borrow to invest, it will interfere with your survivability.  Unleveraged portfolios cannot be stopped out, leveraged portfolios can.  Leverage reduces the investor’s critical asset: patience.

3. Don’t put all your treasure in one boat.

This is about as obvious as any investment advice could be. It was learned by merchants literally thousands of years ago.  Several different investments, the more the merrier, will give your portfolio resilience, the ability to withstand shocks.  Clearly, the more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.

4. Be patient and focus on the long term

Wait for the good cards. If you’ve waited and waited some more until finally a very cheap market appears, this will be your margin of safety.  Now all you have to do is withstand the pain as the very good investment becomes exceptional.  Individual stocks usually recover, entire markets always do. If you’ve followed the previous rules, you will outlast the bad news.

5. Recognize your advantages over the professionals

By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent.  The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep.  The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.

6. Try to contain natural optimism

Optimism has probably been a positive survival characteristic.  Our species is optimistic, and successful people are probably more optimistic than average.  Some societies are also more optimistic than others: the U.S. and Australia are my two picks.

7. But on rare occasions, try hard to be brave

You can make bigger bets than professionals can when extreme opportunities present themselves because, for them, the biggest risk that comes from temporary setbacks – extreme loss of clients and business – does not exist for you.  So, if the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.

8. Resist the crowd: cherish numbers only

We can agree that in real life as opposed to theoretical life, this is the hardest advice to take: the enthusiasm of a crowd is hard to resist.  Watching neighbors get rich at the end of a bubble while you sit it out patiently is pure torture.  The best way to resist is to do your own simple measurements of value, or find a reliable source (and check their calculations from time to time). Then hero-worship the numbers and try to ignore everything else.  Ignore especially short-term news: the ebb and flow of economic and political news is irrelevant.  Stock values are based on their entire future value of dividends and earnings going out many decades into the future.  Shorter-term economic dips have no appreciable long-term effect on individual companies, let alone the broad asset classes that you should concentrate on.  Leave those complexities to the professionals, who will on average lose money trying to decipher them.

9. In the end its quite simple. Really.

(Read the article. Pt 9 is extensive)

10. “This above all: to thine own self be true.”

To be at all effective investing as an individual, it is utterly imperative that you know your limitations as well as your strengths and weaknesses.  If you can be patient and ignore the crowd, you will likely win.  But to imagine you can, and to then adopt a flawed approach that allows you to be seduced or intimidated by the crowd into
jumping in late or getting out early is to guarantee a pure disaster. You must know your pain and patience thresholds accurately and not play over your head.  If you cannot resist temptation, you absolutely MUST NOT manage your own money


It took me a while to realize that what he mentioned are generally all you need to succeed. You have to do it first to realize the emphasis on them. Some of them such as resisting the crowd, waiting for the good cards, trying hard to take the risks when it comes can be really hard to do when you face with those situations.

I urge you guys to check out the full article [here]. It has more than what is written here for certain points.

New to investing? Check out my other great articles [here]

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Monday 27th of February 2012

Nice. I like this article. Agree with it. :)

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