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The Habits and Attitudes of Successful Investors

Handout materials for presentation at RetireMeet by Vestory 2016

Feb 27, 2016

Successful investors yesterday, today and tomorrow

What investors were like in 1966:

  • Successful investors were frugal and good savers (ave. 11%)
  • 77% of large corporations paid pensions
  • Almost all government employees had pensions
  • Investors were willing to pay top dollar to invest
  • Mutual funds were mostly load and charging 8.5%
  • Commissions were regulated and sky high (5 to 20 times current rates)
  • Speculators chased performance and investors focused on long term
  • Diversification was 10 to 20 stocks
  • There were no index funds and no academic research that helped investors
  • Michael Price (value investor) produced huge returns and we didn’t know why
  • No Money magazine, Wall Street Week or Jim Cramer
  • Asset classes (large cap, small cap, value, growth) not on radar)
  • Investors knew aggressive growth, capital appreciation, equity-income
  • Most successful investors relied on high savings rate and being aggressive

What investors are like today:

  • Investors are frugal and good savers (average savings rate now 5%, up from 2.5%)
  • Only 22% of large corporations have pensions
  • Over 90% of government workers still have pensions
  • Successful investors have gone from being aggressive to being defensive

What are the habits and attitudes of successful investors today?

It’s almost all about defense:

  • One company vs. many companies
  • One industry vs. many companies
  • One asset class vs. many asset classes
  • One country vs. many countries
  • Low expenses vs. high expenses
  • Low turnover vs. high turnover
  • Passively managed vs. actively managed funds
  • Expect market returns vs. expect to beat the market
  • Low taxes vs. high taxes
  • Use professional guidance vs. do-it-yourself
  • Use fiduciary standard vs. suitability standard
  • Use mechanical management vs. use emotional decisions
  • Add fixed income to make more money in retirement

Successful investors understand that luck is an important part of success

  • 1940-1959 CRR (compound rate of return) S&P 500 14.1% and SCV 19.7%
  • 1960-1974 CRR S&P 500 4.3% and SCV 6.8%
  • 1975-1999 CRR S&P 500 17.2% and SCV 22.2%
  • 2000-2015 CRR for S&P 500 4.1% and SCV 12.4%
  • Company 401(k) offers good investment choices
  • Company offers match in 401(k)

Successful investors know how to find the best advisors

  • Must represent high ethics and competence
  • Wall Street: High ethics and competence required of advisor, firm and products
  • Do internet search for firm then fraud, churning, unauthorized loans, complaints
  • Main Street: Friends and family who know more than you do
  • University Street: Academics who have no conflict of interest

Successful investors have specific goals

  • They have a plan that includes need for return, risk tolerance, savings rate, etc.
  • Free Chapter 10 from Financial Fitness Forever: Moving to action: 12 numbers to change your life
  • Primary goal: Beat the market?
  • Primary goal: Get the highest return within your risk tolerance?
  • Primary goal: Find the lowest risk way to achieve your long-term goal?

Successful investors ignore noise, predictions and panic

Most fail all three

  • DALBAR results: 3.8% vs. 11.1% for equities and fixed income; .7% vs. 7.4%
  • Fund returns vs. shareholder returns

Successful investors know what they know and do something about it

Imagine pie graph that includes all the information about investing:

  • What you know you know
  • What you know you don’t know
  • What you don’t know you don’t know
  • What you know you know but you’re wrong
  • What you know you know but don’t do anything about it.

Successful investors know they are likely to be their own worst enemy

“Your Money & Your Brain” by Jason Zweig

“Thinking Fast and Slow” by Daniel Kahnemen,


Paul’s Recommended No-Load Mutual Fund Portfolios

Paul’s Recommended Commission-Free ETF Portfolios

Paul’s Recommended Reading

  • “Your Money & Your Brain” by Jason Zweig
  • “The Little Book of Common Sense Investing” by John Bogle
  • “Thinking: Fast and Slow” by Daniel Kahneman
  • “Mutual Funds for Dummies” by Eric Tyson (2016 edition)

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30 Quotes to Make You A Successful Investor

“To be a success you only have to do a very few things right in your life, as long as you don’t do too many things wrong.” –  Warren Buffett

“A share of stock is not a lottery ticket. It’s an investment in a business.” – Peter Lynch

“Investments should be based not on optimism but arithmetic.” – Benjamin Graham

“Diversification is not only the first important thing investors should think about, but the second and the third, and probably the fourth and fifth, too.”  – John Bogle

“People don’t believe what you tell them. They rarely believe what you show them. They often believe what their friends tell them. They always believe what they tell themselves.” – Seth Godin

“Anyone can hold the helm when the sea is calm.” 
– Publilius Syrus (85 to 43 B.C)

“It’s amazing how difficult it is for a man to understand something if he’s paid a small fortune not to understand it.” – John Bogle

“Hundreds of studies have shown that wherever we have sufficient information to build a model, it will perform better than most people.”  – Daniel Kahneman

“There’s nothing in 1, 3 or 5 year past performance data that will help you invest for the next 1, 3 or 5 decades.” – George Sisti

“The biggest risk faced by do-it-yourself investors is that they think they know more than they do.” – George Sisti

“We are what we repeatedly do. Excellence, then, comes not from our actions but from our habits.” – Aristotle

“Investors don’t plan to fail. They fail to plan.” Unknown

“The Stock market is a giant distraction.” – John Bogle

“Beware of expenses:  A small leak will sink a great ship.” – Ben Franklin

“If you want to see the biggest threat to your financial future, go home and take a look in the mirror.” – Jonathan Clements

“One man may be more cunning than another, but not more cunning than everyone else.” – Benjamin Franklin 

“What we learn from history is that people don’t learn from history.” – Warren Buffett

“The Stock Market is designed to transfer money from the Active to the Patient.” – Warren Buffett

“The first rule is not to lose. The second rule is not to forget the first rule.” – Warren Buffett

“Our favorite holding period is forever.”  Warren Buffet

“Do not save what is left after spending, but spend what is left after saving.” – Warren Buffet

“We have two classes of forecasters:  Those who don’t know—and those who don’t know they don’t know.”  – John Kenneth Galbraith, Economist

“All the time and effort people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage.”
 –Peter Lynch

“Don’t confuse facts with feelings.” – Charles Ellis

“The great secret of success in long-term investing is avoiding serious, permanent loss.” – Warren Buffet

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.” – Warren E. Buffett

“It is not necessary to do extraordinary things to get extraordinary results.” – Warren Buffett

“The fact that people will be full of greed, fear, or folly is predictable. The sequence is not predictable.” –  Warren Buffett

“Unless you can watch your stock picking decline by 50% without becoming panic stricken, you should not be in the stock market.” – Warren Buffett

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.” – Warren Buffett