By Michael Ogembo Kachieng’a
After reading several business management and engineering books, I have recorded several words of wisdom by people I consider the greatest minds in the ‘business of businesses’.
Their thoughts are simple, illuminating, insightful, and delivered with imbedded purity of wisdom.
The statements bring fresh thinking into business and life. Unfortunately, fresh thinking is a rare commodity in majority of us, because it promotes the painful process of discovering one’s own stupidity.
These statements, tested over the years, prick our conscience, while guiding us to a deeper understanding of investment strategy. Their genius is in their simplicity.
The great essayist Samuel Coleridge once stated: "Advice is like snow. The softer it falls, the deeper it sinks".
These words of wisdom are simultaneously soft and deep in their delivery.
The power of these timeless statements is that they help us see with our minds, what we cannot see with our eyes. Wisdom has one advantage: She is immortal.
The deeper sense of greatness of mind is not measured in financial currency. The financial units contaminate the value of wisdom.
Experience is the best teacher, but in business it is better to learn from the mistakes of others.
The great explorer, Otto van Bismarck-Schonhausen, once said: "Fools you are to say you learn by experience. I prefer to profit by others’ mistakes and avoid the price of my own." Investment wisdom guides you to become more, through increasing business skills; increasing money management skills and increasing investments skills.
I studied geometry, but never found out whether life is a straight line or a circle. I am not sure whether investment is a straight line or a circle. May be those with investment wisdom.
Be humble
"When you do not know a thing, admit that you do not know it — this is knowledge."-— Confucius
Investing means placing a big bet on an unknowable future. The mark of wisdom is accepting just how unknowable it is.
Granted, that is not easy. Our brains are built to think that the future will be like the near past. And we are too ready to act on predictions of pundits, who are no more clued-up than we are about what lies ahead.
Being humble in the face of uncertainty keeps you from making costly mistakes.
You won’t jump on yesterday’s bandwagon. And before you invest, you will be more likely to ask a key question: "What if I am wrong?" (Intelligent Investor, by Jason Zweig).
Emergency fund
"For age and want, save while you may; no morning sun lasts a whole day." – Benjamin Franklin
The first step in implementing any serious financial plan is to create an emergency fund — ideally three to eight months’ living expenses – stashed in a low-cost ultra-safe savings bank account. Without a financial cushion, any unexpected expense could derail your long-term plans.
The law of risk and reward
It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket. – Miguel de Cervantes
Nothing can break the law of risk and reward, but a diversified portfolio can bend it.
When you spread your money properly among different asset types, a rise in some will offset a fall in others, muting your overall risk without a commensurate drop in return.
It is the closest thing to a free lunch that there is in investing. To make the alchemy work, you must load up your investments with assets whose up and down cycles are out of phase.
Practice patience
"It never was my thinking that made the big money for me. It was always my sitting. My sitting tight!" – Edwin Leferve
This blunt warning was issued in Leferve’s 1923 fictional memoir, reportedly based on legendary trader Jesse Livermore, and treated by many financial advisers as the Bible. Research has shown that those investors who traded less frequently normally got better returns on investments than those who traded frequently, assuming that investment capital is the same for all investors.
Moral: Once you arrange your assets into your ideal allocation, do not tinker. Rebalance once a year to keep your mix on tract, otherwise, listen to Livermore and sit tight.
Don’t time the market
"The real key to making money in stocks is not to get scared out of them." – Peter Lynch
It would be strategically nice to sell before every market downdraft, and then get back in just as the good times roll in again.
But it is too hard to pull off that strategy. Nobody knows when markets will turn. And when they do, they tend to move in quick bursts.
By the time you realise that an advance has begun, most of it is already over.
Miss that initial stretch and you will miss out on most of the gains. The lesson: The surest way to make a successful investment is to buy, then stick to your plan.
