Suggestion 1: Believe in History

History repeats itself, and you’re in peril if you forget this. All bubbles will burst, and all investment madness will vanish. During the investment frenzy, you are constantly agitated by vested interests, as well as by the media and analysts, who assure you that the current economic situation is uniquely good, the investment situation is optimistic, and the real economy has the potential for higher and longer-lasting growth, even if these views From the Fed itself, you should also ignore them and not get too influenced by them.

If the market is going to rise more violently, it’s just getting further and further from its true just value. But in the end, the market will let you down, and it may drop back to a reasonable level of value in your excruciating pain and fidgeting. Investors are tasked with surviving such market volatility, and below are more specific measures.

Recommendation 2: Don’t be a borrower and don’t be a lender

If you take out a loan to invest, it interferes with your ability to invest. Portfolios that do not use leverage cannot be liquidated, while investments that use leverage are exposed to this risk. Leverage can impair the patience of investors themselves. Lending fuels financial activism, making investors more reckless and greedy. It will temporarily increase your rewards, but eventually it will suddenly destroy you. It allows people to afford items now that they may not be able to pay in the future. It has been shown to be extremely seductive, and both individuals and groups have proved irresistible, as if it were a hypnotic drug.

The government also seems to have proved itself incapable of resistance since the middle of the last century, especially now. Any healthy society must recognize the temptation and addictive dangers of debt to human beings, and pass laws to restrain it. Interest payments should not be tax deductible. The government’s accumulated debt should be reasonably limited, say, not reaching 50% of GDP, giving 10 or 20 years to correct the current debt problem.

Tip #3: Don’t put all your assets in one boat

This is probably one of the items included in all investment advice. Merchants recognized this two thousand years ago. Allocating your investments in a few different sectors, and as many as possible, can increase the resilience of your portfolio and enhance your ability to withstand shocks. Obviously, when your investments are numerous and varied, the more likely you are to survive a critical period when your primary asset falls.

Tip 4: Be patient and focus on the long term

Investors should be patient and wait for good cards. If you wait long enough, the market price can become very cheap, which is the margin of safety for your investment. So what investors need to do now is still suffer the pain of waiting for better investment opportunities until some of them turn out great.

Individual stocks usually bounce off bottoms, and the market as a whole is cyclical. If you follow the above rules, in the long run, you will benefit from the bad situation that individual stocks face temporarily, because you can buy stocks at lower prices.

Tip 5: Recognize your comparative advantage over professionals

By far the biggest problem facing professionals is that, as an investment agent, they have to defend their own business first, which makes them shy about investing. The second problem for professional investors is that they have to be active in investing because of the ranking. And individual investors can better wait patiently for the right price without paying attention to what others are doing, which is almost impossible for professional institutional investors.

Recommendation 6: Try to control the optimism in human nature

Optimism can be a positive trait for survival. We humans are an optimistic species, and successful people are likely to have above-average levels of optimism. There are some countries and regions where people are more optimistic than others, and I think the United States is a relatively more optimistic country. This has a positive effect on the real economy. For example, the United States encourages risk-taking, and failed entrepreneurs are also respected.

But optimism is a downside for investors, especially optimistic investors who don’t like bad news. If someone tells you there’s a bubble in the housing market, he’s going to be criticized. In the stock market bubble in the United States in 2000, bad news was like the plague, and people hated it. Bearish professionals will be fired simply because people don’t want to hear discordant voices about the bull market. This example shows that when something looks good, taking it out of people’s hands can make people very unhappy, even if it’s just talk. In this frenzied situation, it is easier for individual investors to remain calm than professional investment houses that are generally surrounded by news (and sometimes frenzied clients). It’s definitely not easy, it’s just relatively easy.

Recommendation 7: In rare situations, try to be brave

When extreme opportunities are presented to you, you can invest a larger percentage of your capital than professional institutional investors. So if the numbers tell you this is really a seriously underpriced market, bite the bullet and be brave enough to jump in.

Recommendation 8: Stay away from the crowd and focus only on value

In real life, the emotions of individuals towards groups are irresistible. Seeing your neighbors get rich in a speculative bubble while you stay out of the market is really torture for you. Your best defense against crowd agitation is to focus on your own calculations of the intrinsic value of individual stocks, or find a reliable source of value measurements (check their calculations from time to time). Then worship these values ​​like a hero and try to ignore everything.

Especially ignore the short-term news: the ups and downs of the economy and irrelevant news from the government. The stock value is based on the company’s dividend income and cash flow earnings over the next few decades. A short-term economic plunge has no discernible impact on a company’s long-term value, let alone for the broader asset class. Stay away from so-called professionals who try to decipher market movements in the short term, who will lose money in the long run.

Remember, those great opportunities for investors to avoid grief and make money are very clear in numbers: compared to the long-term average of 15 times earnings for the U.S. stock market, 21 times when the market peaked in 1929, the Internet in 2000 The S&P 500 was trading at 35 times earnings at the peak of the bubble! Conversely, at the stock market’s low in 1982, the P/E ratio was 8. It’s not complicated.

Recommendation 9: Investing is actually quite simple

GMO has a simple and healthy way to predict returns across asset classes: assume that profit margins and price-to-earnings ratios will move closer to their long-term averages over a 7-year cycle.

Since 1994, GMO has completed 40 quarterly forecasts. Statistically speaking, these 40-plus expectations are valid, and some are surprisingly accurate. These estimates aren’t overly complicated math, they’re just GMO’s ignoring the influence of crowd sentiment, using simple ratios, and being patient.

The problem is that while they may be predictable, they are harder for professionals to use due to performance pressures and much easier for individual investors to use.

Tip 10: Be true to yourself

As an individual investor, you must understand your strengths and weaknesses. If you can be patient and ignore the lure of the crowd, you’re likely to win. But if you take a flawed approach, get lured and intimidated by the crowd, follow the crowd, enter the market late in the rally, or leave the market early in the rally, it’s catastrophic for investing. You must know your pain and tolerance thresholds precisely. If you cannot resist temptation, you will never manage your money well.

There are two perfectly reasonable alternatives: Either hire an investment manager with these skills, it’s actually harder for an investment manager to stay aloof in front of the crowd. Or, invest in a globally diversified stock and bond index and try to ignore it until you retire. On the other hand, if you’re patient, have a high tolerance threshold, have the mental capacity to not conform, and have a college-level knowledge of math and a lot of common sense, then you’re ready to invest.

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