At bottom, investing is identical in its requirements for success to all other fields of human endeavor. It requires sufficient intelligence, ample analytical ability, thoroughness, painfully acquired knowlege, diligence, intense application. It also requires emotional self-discipline, the ability to put wishful thinking aside, the ability to be self-critical, an openness to new ideas, the willingness to change thinking patterns and operational behavior in response to changing conditions or new insights. Success in investing demands respect for experience but not blind obedience to it.
Investing, in the final analysis, boils down to ONE ESSENTIAL, IRREPLACEABLE ELEMENT. This element is: COMMON SENSE!
In the realm of investing, there are many corollaries to the primary commandment of COMMON SENSE. Among them are:
--Caution, particularly when emotions run strong;
--Extra-criticality when herd movement is driving prices and generating intense emotional heat;
--The ability to stick to the long view, as formed by careful analysis and so long as it continues to be confirmed by underlying trends, REGARDLESS of apparently confuting immediate developments;
--Adhering to the ancient wisdom: "Do not put all your eggs in one basket," no matter who is committing this very egregious error and the unpopularity of maintaining diversity of investments when one asset class or market sector is ballooning in price;
--Basing the bulk of portfolio allocation upon PROBABILITY, but at the same time considering small but very dangerous POSSIBILITIES, and making at least SOME PROVISION AGAINST SAME;
--Eliminating rigorously from the decision-making process ALL "I think..."
--ALWAYS IGNORE the clamor of the media and the hysteria of the herd;
--Approach the consensus view with a contrarian bias, but do NOT AUTOMATICALLY act upon the contrary bias unless your emotion-free ANALYSIS produces a high probability conclusion about the correctness of your contrary view of the consensus;
--Do NOT base decision-making upon any GRAND THEORIES, either your own or someone else's;
--Accept that there are no systems;
--DO YOUR HOMEWORK before reaching conclusions. Consider all evidence including that which contradicts your preferred bias;
--Set realistic objectives and stick to them regardless of emotion-driven price movements.
In other words, apply the principles of COMMON SENSE every step of the way.
This may be a banality, but it is a PROFOUNDLY IMPORTANT BANALITY, one which is generally ignored.
