Investing: You Don't Have to Learn the Hard Way

Little minds are interested in the extraordinary; great minds in the commonplace.  -  Elbert Hubbard    All of us have heard the expression that experience is the best teacher.  Like many old expressions, you must be careful how you interpret its meaning.  In reality, the best way to learn is by observing the past successes and failures of others.  Our own lifetime is limited.  By utilizing the knowledge gained by others, we can determine the financial strategies most likely to succeed without wasting the time and effort required by our own trial and error experiences.  A logical place to start our observations is to review the investment guidelines used by some of the most successful stock market investors of all time.  Their guiding principles, based on decades of experience, should be thoroughly tested against most of the conditions any stock market investor is likely to encounter.  The following brief biographical sketches summarize the wisdom provided by five super successful stock investors:  Benjamin Graham, 1894 - 1976.  Benjamin Graham, considered one of the fathers of modern stock market investing, achieved a 17 percent average annual return on his stock market investments from 1929 to 1956.  This is extraordinary, considering that the time period from 1929 to 1945 included the 1929 stock market crash and the Great Depression, and represented one of the most difficult time periods in economic history to make money in the stock market.  Graham argued that the distinction between investment and speculation was an important one that was often misused by financial professionals.  Graham felt that investors should concentrate on the task of locating the stock of companies with sound financial standing that was priced well below the value of the company, irregardless of the general outlook of the economy or the stock market.  By applying these principles to select a diversified group of stocks and by maintaining a long-term approach, the investor separated himself from the speculator and would eventually be rewarded.     Warren Buffett, 1930 to present.  Warren Buffett is probably the most successful stock investor of all time.  Solely due to his stock picking abilities, on any given day Buffett is either the richest man in America or one of the richest men in America.  From 1957 to the present (over 40 years!), Buffett has achieved an average annual return of more than 25 percent per year on his stock investments.  However, Buffett did not achieve this enviable record using some complicated investment strategy or by borrowing money to magnify his investment returns.  Instead, some simple, familiar themes begin to emerge when you study his investment philosophies.  Buffett buys stock in what he calls franchise companies - companies that produce products that society needs or wants.  He buys these stocks with the intent of never selling them.  He meticulously studies each business of interest, and only buys the stock of companies in sound financial condition that can be purchased well below his assessment of their intrinsic value.  Buffet only buys stocks of companies that he understands.  Some of his largest stock investment returns have been made in household names like Capital Cities/ABC, Coca-Cola, and The Washington Post.  Anne Scheiber, 1894 - 1995.  Anne Scheiber is probably unknown to most people.  However, her accomplishment of creating a $20 million estate by investing in the stock market over approximately 50 years makes her a very successful amateur investor.  There is some debate over her true investment return over the 50-year time span, but it appears that it probably ranged between 12 and 17 percent per year.  Scheiber learned by reviewing the tax returns of wealthy individuals during her career as a tax auditor with the Internal Revenue Service that stocks were a proven way to get rich in America.  Her investment strategies were simple: invest in companies that create products that you know and admire, continue to invest, never sell stocks you believe in, and keep informed of your current investments.  In fact, Scheiber's top ten stock investments before she died included such well known companies as Coca-Cola, Exxon, and Bristol-Myers Squibb.  National Association of Investment Clubs (NAIC), 1940 to present.  NAIC is probably the best, well kept secret for the individual stock market investor anywhere.  NAIC is a national organization that anyone can join that assists individual investors and investment clubs by providing investment education.  Over the years, NAIC has developed an investing philosophy that can be used by anyone to identify a diversified group of growth stocks that are selected to double in value in five years.  The national annual average return for the stocks owned by thousands of investment clubs associated with NAIC throughout America have frequently outperformed stock market averages for the past 30 years.  Peter Lynch, 1944 to the present.  Peter Lynch may be the most widely recognized stock market investor.  From 1977 to 1990, Lynch piloted the now famous Magellan Mutual Fund to an amazing 29 percent average annual return.  He is the author of several popular books, appears as a guest speaker on numerous television programs, and is a columnist for several magazines.  Lynch's investment philosophy and advice for others is simple: invest in what you know, ignore the advice of others (including professional investors), ignore market fluctuations, and look for companies undiscovered by professional investors.  These biographical sketches should convince you that anyone, regardless of background or training, can succeed in the stock market.  Individual investors can compete head to head with professional investors and, more importantly, investment principles between successful individual and professional investors are often very similar.  Considering the complexity of the stock market, it is surprising that so many common threads run through these widely diverse, but successful, stock market investors.  These common threads or guidelines for stock market success can be summarized as follows:       ·        Invest for the long term       ·        Diversify your investments       ·        Invest regularly       ·        Avoid market forecasting       ·        Know what you are investing in. What could be easier?  The financial community seems to always make things more complicated and confusing than they need to be.  Never confuse sophistication with success.  Simple, proven strategies followed religiously often produce superior results.   http://www.mind-like-water.com/Rogue_Investor/RI_Articles/Rogue_Investing/RI_HardWay.html