While stock market quotes wisdom often have the shape of funny, light-hearted sayings, they tend to have a more serious undertone. At the same time, stock market wisdom is not always stock market truth. Below we have collected seven of the most well-known statements and we consider what you can take away from them as an investor.
“Be fearful when others are greedy and be greedy when others are fearful”
- Warren Buffett, CEO of Berkshire Hathaway and one of the most well-known investors in the world
Perhaps the most well-known stock market wisdom and statement by one of the most famous financiers of our time. The idea is that you should try to control your fear and dare to make contrarian moves on the market. If everyone is excited about a particular stock or the market, sell. If no one wants to have a share or dares to enter the market, then have the guts to buy. The reason behind this train of thought is that stocks that are hyped could also be overpriced, while bargains can be found where no one looks. What’s difficult with this strategy is keeping your nerves in check, because in the short(-er) term you will have the market momentum against you.
“Wall Street people learn nothing and forget everything”
- Benjamin Graham, former economist, professor and investor, known as the father of value investing
Graham is here referring to that no matter how much knowledge investors have, no matter how much they continue to learn, they forget everything over and over and make the same mistakes. These missteps are often motivated by emotions such as fear, greed and regret. That is why 'bubbles' and 'hypes' have happened throughout history.
“Don’t Try to Time the Market”
– Peter Lynch, investor, mutual fund manager, philanthropist and manager of the best performing mutual fund in the world from 1977-1990
What Peter Lynch is saying here is really that you should get your decision paralysis under control and understand that you’ll never be able to time the market perfectly. So instead of waiting for the right time to get in or out, you should rely on reason and make sure that you setup a strategy with rules for you to follow, so it doesn’t become an emotional decision to make moves in the market.
“The four most dangerous words in investing are: this time it's different”
- Sir John Templeton, former fund manager and philanthropist
Do you remember the internet hype of 1999? Initially, it was companies working with information and computer technology, whose share prices got unprecedented valuations. In the end, the prices of both good and bad companies rose worldwide. A new economic era, driven by the Internet, had arrived and some thought that we would have economic prosperity forever. This time it would be different. Until the first dot.com companies collapsed. The early investors cashed in on their profits and the ones that were late to the party got stuck with the bill. The stock market declines that followed pushed the world into a slight recession.
“Sell in May and go away, come back on St. Leger’s Day”
- Unknown author – believed to have been coined in London’s financial district
This is one of the more famous phrases within the finance world. If you’ve heard it before, you’ve probably heard it as “sell and May and go away but remember to come back in September”. While the saying’s origin is unknown, the form above is believed to be the first version, relating to a British horse race, St. Leger, that took place in September. The phrase refers to the belief that the investments perform worse over the summer months than rest of the year. While there’s research supporting the notion, there’s also research pointing to the contrary, so the idea must be taken with a grain of salt.
“There is a time to go long. There is a time to go short. And there is a time to go fishing”
- Jesse Livermore, infamous stock trader known for among other things playing a big short just before the big depression in 1929, making him millions.
Livermore, who had several nick names such as the great bear of Wall Street, says here that there are circumstances on the financial markets, where you need to buy (when the chart shows a positive trend), in others you must go short (when the trend is down) and sometimes sit on your hands for a while when markets are moving back and forth in a directionless way. But this can be hard. You may know the feeling: after you have sold a stock position, you tend to 'have to do something with the money that has become available', while a breather is in order. Incidentally, Livermore became a multimillionaire several times, but he also went bankrupt just as often. The last bankruptcy led to suicide after years of depression.
“Markets can stay irrational, longer than you can stay solvent”
- John Maynard Keynes, former economist and considered the founder of modern macro economics
No matter how well you've done your homework and how strong your fundamental arguments are, the market can 'move against you' for a long time. That’s where your strategy again becomes important. For instance, in times like that, instead of relying on your own emotional state to decide when to go out, consider using a stop loss.