Our initial blog on investment beliefs highlighted 5 beliefs that could damage future investment performance. We subsequently added 10 more beliefs preventing investors from taking investment actions likely to yield a positive outcome.
- Belief #1: Money in the bank is safe.
- Belief #2: Investing is optional.
- Belief #3: Buying and selling shares is the way to make money.
- Belief #4: Investing and speculating are the same things.
- Belief #5: I can lose all my money if markets crash.
- Belief #6: Investment success means beating the “market”.
- Belief #7: The primary goal of investing is capital gain.
- Belief #8: Great investors focus on generating big gains.
- Belief #9: I have lost money if a share price declines.
- Belief #10: Warren Buffett says “buy index funds”.
- Belief #11: Share prices are not affected by investor emotion.
- Belief #12: A stock market crash is a disaster.
- Belief #13: You have to understand all companies to succeed in the market.
- Belief #14: Magic formulas are the key to stock market success.
- Belief #15: High energy, active investors get the best returns.
Here are five more damaging beliefs to supplement the ones above.
Belief #16: Dividend payments are dependent on the price of a share.
Dividends payments have nothing to do with a company’s share price. Dividend payments are dependent on the company’s ability to generate free cash flow.
Belief #17: Smart investors are always on the lookout for an opportunity to sell.
Smart investors and the world’s billionaires are not sellers of quality assets. Ever. There is no need to sell an investment that continues to generate free cash flow.
Belief #18: Compounding is all good in theory, but that’s not the secret to investing success.
Owning companies that compound free cash flow over a long period is the way to grow wealth.
The other common reason for the failure to start is the perception that it takes too long to get going. What is almost invisible in the beginning is unstoppable in the end.
Belief #19: Owning the Mona Lisa is better than a 6% return per year.
Warren Buffett has this great story to tell about the power of compounding even small amounts over long periods.
Francis I of France paid the equivalent of $20,000 for Leonardo da Vinci’s Mona Lisa in 1540. The Mona Lisa was valued between $800 mill and $1 billion in 2016.
Not bad. However large the value seems, it is only 2,3% growth per year over 476 Years.
If Francis had kept his feet on the ground and he (and his trustees) had been able to find a 6% after-tax investment, the estate now would be worth something over $1,000,000,000,000,000.00. That’s $1 quadrillion or over 3,000 times the present national debt of the United States of America, all from 6%.
No one speaks about “investing” in art in the Buffett household.
Belief #20: Established companies are poor investments.
Great returns come from owning companies with proven track records and have already demonstrated that they are of high quality.
Warren and Charlie do not invest in businesses that do not possess an existing competitive advantage that is likely to sustain for the next 5 – 10 years.
At AXIAM, we believe Warren Buffett when he says “I think sound investing can make you very wealthy if you are not in too big of a hurry. And it never makes you poor, which is better”. We focus on a long-term investment strategy built on 11 Investment Principles gleaned from the world’s great investors like Warren Buffett, Howard Marks and Charlie Munger. Contact our fund managers or sign up for our newsletter if you would like to learn more about investing your capital to provide ongoing retirement income.