Stock market investing is often considered a gamble. A general perception is that your success depends purely on luck.
This, however, is not true.
Some of the rules of the market are fairly simple. Famous investors and market gurus, who have made millions of bucks in stocks, will vouch for this.
Here’s a look at what they said about stock market investing and what it means:
The natural-born investor is a myth
Peter Lynch
What this means: Peter Lynch, a renowned mutual fund manager, believes that investing in the stock market is not an in-born talent. It can be learnt and understood by thorough research and analysis. This is why investors should never enter a stock without analysis. This is why he also said: “Know what you own, and know why you own it,” and “Behind every stock is a company. Find out what it is doing.” Lynch is also known for his two books ‘One Up on Wall Street’ and ‘Beating the Street’. These are generally considered a must-read for every serious investor.
The four most dangerous words in investing are: This time it is different
Sir John Templeton
What this means: It is important to remain cautious about stock market cycles. Stock markets move in cycles. Whatever goes up, comes down too and vice versa. Track the historical trend in prices, advises the American-born British investor and businessman. History often repeats itself.
In the short run, the market is a voting machine, but in the long run it is a weighing machine
What this means: Benjamin Graham is considered the father of ‘Value Investing’. This is the approach of investing in stocks of great companies at fundamentally cheap prices. Value investing believes that price is not an accurate representation of the company’s value. Graham believes that the stock market runs on sentiment in the short-term. However, in the long term, only those stocks which have an actual value make profits. For this reason, he says that the market is a weighing machine of stock values in the long term.
The stock market is filled with individuals who know the price of everything, but the value of nothing
Phillip Fisher
What this means: Phillip Fisher is considered one of the best investors, who believed in value investing. Often, a value investor may go against market trends to buy stocks because the underlying company is inherently valuable. The corollary is that you should not blindly follow the market trend. This is because markets may be blinded by sentiment in the short-term. They may misunderstand a stock’s real value.
Wide diversification is only required when investors do not understand what they are doing
Warren Buffett
What this means: Warren Buffett, also called the Sage of Omaha, is one of the richest men in the world, thanks to his ability to choose the right investments – be it stock or otherwise. He often advises investors to avoid diversification. He believes that if you select a good stock after thorough research about its long-term capabilities, you wouldn’t need diversification as a safety net. Diversification is widely considered a means to reduce risk in your portfolio. This is because the fall in one stock in the kitty may be compensated by the rise in another.
You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets
Peter Lynch
What this means: Another golden rule in the markets – especially if you are long-term investors – is patience. The market will go through cycles. Stocks will fall at some point in time. However, if your stock has value, it will rise again. Patience is key to ride the lows.
The simpler it is, the better I like it
Peter Lynch
What this means: Stock market investing is simple. Yet, on the face of it, it may come across as complex. Targeting this vulnerability, there may be complicated schemes that promise high returns. It is better to avoid investing schemes that you find too complex. Understand where you invest and why.
Don’t look for the needle in the haystack. Just buy the haystack!
Jack Bogle
What this means: John C. “Jack” Bogle is the founder of the world’s largest mutual fund – Vanguard. It is, thus, not surprising if he asks you to buy a large set of stocks, rather than picking select valuable ones. This would come handy to an investor who does not have the know-how or time to pick the best stocks. Instead, investing a bunch of good stocks – either directly or through mutual funds – could be a suitable option.
How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case
Robert G. Allen
What this means: It’s simple. There is not gain without pain. Similarly, you can’t make money without taking a few risks. Savings bank accounts are considered one of the safest investment options. Robert G. Allen, touted the real estate guru, believes simply investing in safe investments will take you nowhere on the road to wealth.
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas
Paul Samuelson
What this means: Investing in the stock market is not a gamble. It needs patience and bears fruits over a longer term. If you want short-term money, you should rather go to a casino, according to Paul