- Don’t invest in anything that you don’t understand. Yourself. Not because someone sold it to you or because others are doing it.
- Don’t pay high fees for investment products unless you know why the product is worth it. Many are not.
- Don’t assume that someone giving you financial advice has their incentives aligned with you doing well. Most people in finance can (and sometimes do!) make a lot of money while not adding value. It is not that they set out to purposefully do this, it is just that the way they get compensated frequently lacks alignment with maximizing your financial well-being.
- Don’t fall victim to behavioral marketing tactics. Robert Cialdini’s Psychology of Influence is an excellent book to read to understand how they work. Also, check out this article that may help you learn how to practice behavioral defense: Behavioral Defense in Decision Making
- Don’t focus on the short-term, allow yourself to be unduly influenced by the financial news media, or let news about the market or the economy affect your long-term investing strategy.
- Do save as much as you can consistently from an early age. Compounding works best when you start early.
- Do have an emergency cash reserve to cover 3–9 months of expenses before you begin investing. It will help you not be a forced seller of your long-term investments when circumstances change unexpectedly.
- Do start with a low-cost, passive investing strategy as your default option. Only deviate if you know exactly why that makes sense for you.
- Do focus on the long-term. As Benjamin Graham famously said, “In the short-term the market is a voting machine, but in the long-term it is a weighing machine.” What he meant is that securities can trade at any price in the short-term based on people’s opinion, but in the long-term the markets are pretty good at properly valuing assets and cash flows.
- Do match the time horizon of your investments with when you will need the money. Investments in stocks should ideally be made with a time horizon of 5+ years, with a minimum of 3. If you mis-match the duration of your investments vs. when you will need the money, you run the risk of being a forced seller at a temporary market low.
Article by Gary Mishuris, Behavioral Value Investing
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More