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Learning from the Mistakes of Others

Learning from the Mistakes of Others

| May 25, 2016

Thirty-five years of investment experience has provided me with some important lessons about investing. Some of these lessons have been learned from experience and some have been learned by observing the mistakes of others. Of the two methods, benefiting from the mistakes of others is the least expensive and the most rewarding. I would like to share with you three lessons about investing that I have learned over the years that I believe will be beneficial to fellow investors.

Lesson Number One: Do not be unduly influenced by everything you hear or read in the media. On a daily basis the media quotes advisors “in the know” who are bullish and others who are bearish. Both positions can be equally convincing. Over the years, we have learned to be wary of attributing too much importance to these reports. Our observation has been that many opinions delivered by the financial media are short-term in nature without acknowledging how difficult it is to make money by investing on a short-term basis. We have come to recognize that the “experts” who are the most certain about their short-term prognostications may often be using the media for self-promotion. It is much better to focus on long-term trends and invest accordingly.

Lesson Number Two: Learn to be patient. It is so easy to succumb to negative short-term market sentiment. Owning good businesses which consistently increase earnings, sales and market leadership are examples of successful investments. However, it may take time (usually 3–5 years) for these fundamentals to be reflected in the price of an investment. When the stock market undergoes declines, many investors lose sight of the long-term qualities of their investments and sell in a panic. Although past performance is no guarantee of future results, the investors who remain focused on fundamentals and hold on are often rewarded. Patience is a very important investment trait, but also one of the toughest to practice.

Lesson Number Three: Be open to new ideas and willing to change your mind. Being patient does not mean you cannot admit a mistake. Although difficult to acknowledge, all investors make some errors in judgement. When it becomes evident a mistake has been made, do not procrastinate—correct the error and move on to a better opportunity.

Applying these lessons will not guarantee investment success, but it will provide a solid framework for making decisions. To be successful, it is not necessary to be perfect. Being more right than wrong will likely be sufficient.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk and a potential loss of principal.