6 Important Financial Insights

Much of what all financial writing is about, and certainly this column, is the on-going effort to make simple sense of the vast and messy world of money affairs. We are always in a reductionist mode, looking for that searing insight or sensible, believable, perspective that lets in a little bit of light. We want to make and accumulate money, avoid the foolish kind of mistake(s) that we are all so prone to make and have some sense that we are on top of things.

In that spirit, I want to give a tip o’ the hat to Jason Zweig of The Wall Street Journal and The Motley Fool, a syndicated column (the Motley Fool, the court jester, you might remember, was the only one in medieval Europe permitted to speak truth to the king) for the nexus of the following thoughts.

First of all, we know that money affairs are complicated, multi-factorial relationships. Where we go wrong often is in over simplifying the effect of myriad events, trends, and numerical analysis. So here is nugget #1: “Conditions and markets constantly change but good advice never does.”

If publications seem to be saying the same things over and over, that’s because we are. We’re just trying to rephrase in different ways to get through to different people who have different contexts of understanding. Also, just as we all know after 20+ years of schooling, repetition is one key to learning.

Here is nugget #2: “Buy good companies, buy them cheaply (especially when the market is down, like 2008-2009) and hold them for a long time.” Say this out loud; it helps. While we are trying to stay the long course, we might as well add election results’ supposed effects to the “noise” that we should ignore. As Zweig pointed out in a Nov. 21 article, pundits’ predictions of how whoever wins will sway markets almost never come to fruition. That’s because elections’ effects are only a small piece of a big pie and whatever promises the eventual winners had made either never come to pass or are considerably watered down when they finally do manifest.

Nugget #3, therefore, if you haven’t discovered this by now, realize that “…most opinions, even knowledgeable, relatively rational ones are biased, incomplete, uninformed or just plain wrong.” And that particularly includes some famous talking heads on TV. We should keep in mind that every day some geniuses go bankrupt and some idiots get rich.

Nugget #4: “Market success just requires patience and discipline, but the market often attracts the impatient and impulsive in us, and among us.” Why are we usually so careful about where we put our hard-earned managed care money, especially in small things, but we readily launch into investing, often large amounts, which we often know so little about?

Nugget #5: “Investing is personal and emotional but we sometimes look at vast amounts of data to try to make ourselves feel good about what we are doing.” You don’t have to be a cynic to realize that the market is not objective. It is psychological, largely made up of opinions and feelings.

Nugget #6: “These are just some of the reasons why ‘Buy Smart and Hold’ is boring, but as I keep saying, what’s wrong with getting rich slowly?” Sit back, relax, save regularly, make a few bucks every day, and you do not have to do a thing but watch. What a deal.