Many investors and pundits on TV like to use well-known investing quotes. Most of these quotes have a ring of truth to them. Warren Buffett's investing quips are widely known, so I promise not to use too many of them. Fortunately, there are many others worth remembering as you evaluate your next investment decision. (Learn more about Buffett in Think Like Warren Buffett.)
The Trend Is Your Friend
One quote you often hear is "the trend is your friend." No one seems to know who came up with this quote, but it is followed by many traders and investors. Depending on whom you reference, 60 to 93% of a move by a stock is due to the underlying trend, indicating the quote is worth heeding.
Other financial commentators mention that following the trend is an essential strategy for successful investors. John Bogle, the founder of The Vanguard Group, stated, "The genius of investing is recognizing the direction of a trend – not catching highs and lows." Many people try to pick the exact top and bottom of any move. Here, one of the greatest investors says the trend is much more important than picking the high and the low.
Peter Lynch, the investment manager of Fidelity Funds Magellan Funds fame, has an interesting perspective on picking the top. He said, "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves." An interesting view considering how many people on TV and in print claim a top is in place in the middle of a long up trend. (Learn more about Lynch in Pick Stocks Like Peter Lynch.)
Never Lose Money
Warren Buffett has one quote that is widely mentioned, though many people find it hard to abide by. "Rule no. 1: Never lose money. Rule No. 2: Never forget rule No. 1." It is a lesson many investors learn the hard way. Maybe that is the only way we will remember it.
While not a noted investor, Kenny Rogers delivered some sage advice in his song "The Gambler" that compliments the Buffett quote. Written by Don Shiltz, "The Gambler" contains a phrase that works for investors: "Know when to hold ‘em, know when to fold ‘em." This gambler's discipline applies to every investor and trader.
Go Where the Puck Will Be
Wayne Gretzky, the world's greatest hockey player, who had the honor to light the Vancouver 2010 Olympic flame, is famous for saying: "I go where the puck is going to go, not where it is …" A simple idea that successful investors follow.
The complement to Gretzky's strategy comes from Sir John Templeton, a highly successful investor. Sir Templeton said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." Investors who buy when the market is at its worse recognize the market will rise and they are skating to where it will be. (Learn more about Templeton and other successful money managers in Top Five All-Time Mutual Fund Managers.)
Shelby Davis, a highly successful investor who built a substantial fortune by investing in companies he knew well stated, "You make most of your money in a bear market. You just don't realize it at the time." Mr. Davis recognized that bear markets create an opportunity to buy at excellent prices. With all the pessimism, it is hard to remember that bear markets create good buying opportunities.
Following the Advice
It is easy to state what we should do when investing. The real problem is following the good advice these quotes offer. Just imagine where we would be if every investor recalled even some of these quotes before they execute a trade.