Warren Buffett once remarked, “Investing is simple, not easy.”
There’s a big difference between something simple and something easy.
A common piece of advice in the investment world is “Buy Low, Sell High”. During the 2008 financial crisis, the stock market went into a tailspin. You could’ve run your finger down the P/E column of the newspaper and found dozens of financially sound companies trading for pennies on the dollar. Yet, not many are brave enough, to take the plunge, to buy them, in quantity at such great discounts. Most investors were too scared to take action at that time!
Warren Buffett’s investing golden rule is: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.
What separates the great investors from the general pack is their ability to stay rational while their long stocks are subjected to very volatile stock market conditions, especially in a very bearish situation.
Howard Marks, chairman of Oaktree Capital Group, which has about 100 billion in assets under management has been quoted as saying this: “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.”
John Templeton was one of the pioneers in the mutual fund industry. He is noted for, during the Great Depression, buying 100 shares of each NYSE-listed company that was then selling for less than one dollar a share (104 companies in 1939), later making many times the money back when industry in the U.S. picked up as a result of World War II. He is arguably the greatest global stock picker of the century (1999 edition of Money magazine). His investing motto is “Focus on the value, because most investors focus on outlooks and trends. You must be a fundamentalist to be really successful in the market.”
The list of billionaires on the Forbes 400 is filled with investors who have made their money from buying stocks when they were selling for less than the underlying worth of the business.
“Life is really simple, but we insist on making it complicated.” ~ Confucius
“Simplicity is a great virtue but it requires hard work to achieve it and education to appreciate it. And to make matters worse: complexity sells better.” ~ Edsger W. Dijkstra
When we read Warren Buffett revealing that there are only two rules of successful investing, namely:–
Rule No. 1: Never Lose Money (Your Capital).
Rule No. 2: Never Forget Rule No. 1
Most retailed investors will feel like this: “Great thought, is that it? It can’t be that simple!”
Let’s dive in to understand what is his rationale in recommending that!
Let me show you a excel spreadsheet, assuming you have a trading account of initial balance of 10K USD. Each time you lose 10% of your starting capital, you need to make more than 10% to make it whole. The further away of your 10K capital, the more you have to make up the 10K USD whole.
| Starting Amount | Amount Loss | Percentage Wise | Balance | Trading Gain To Make 10K Whole | Gain Percentage Wise |
| $10,000 | $1,000 | 10% | $9,000 | $1,000 | 11.11% |
| $10,000 | $2,000 | 20% | $8,000 | $2,000 | 25.00% |
| $10,000 | $3,000 | 30% | $7,000 | $3,000 | 42.86% |
| $10,000 | $4,000 | 40% | $6,000 | $4,000 | 66.67% |
| $10,000 | $5,000 | 50% | $5,000 | $5,000 | 100.00% |
| $10,000 | $6,000 | 60% | $4,000 | $6,000 | 150.00% |
| $10,000 | $7,000 | 70% | $3,000 | $7,000 | 233.33% |
| $10,000 | $8,000 | 80% | $2,000 | $8,000 | 400.00% |
| $10,000 | $9,000 | 90% | $1,000 | $9,000 | 900.00% |
| $10,000 | $10,000 | 100% | $0 | $10,000 | No Trading |
Buffett’s investing track record is unparalleled. From 1965 to 2017, Berkshire Hathaway’s rising market value generated a 20.9 percent annual return compared to S&P 500’s 9.9 percent, resulting in a cumulative gain of 2,404,748 percent versus the market’s 15,508 percent return.
Unless you have the investing acumen of Warren Buffett, losing your capital is as good as writing of your investment after only the first two tries in trading. No wonder Warren Buffet cautions everyone who want to do investing, to stick to the successful investing rules.
There must be a way to not lose your capital in trading/investing in the stock market. The answer is systemised your trading strategies such that your greed and fear mindset is not in the way of you, being a successful trader and investor.
I’m starting a Mastermind Group, with the aim of members achieving financial investment success through the guiding motto of “Investment Is Simple, Not Easier”.
If interested to join the group, please drop me a line to reubeno@theblockchaininternet.com, stating your aim and how the Mastermind Group can help you to achieve your financial goals.
Thank you for dropping by.
Reuben Ong