5 investing facts of life

Columnist at the Motley Fool Morgan Housel recently came up with an impressive list of investing aphorisms that distill the wisdom gleaned from years of writing about markets and the financial industry. Most are either insights into human psychology or historical facts and figures. Almost all of them are good advice. Some favorites from the list.
The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments.The most innovative, some of the worst. Very true, and finance researchers have noticed the outperformance of value stocks over glamor stocks for decades!
According to University of Oregon economist Tim Duy, “As long as people have babies, capital depreciates, technology evolves, and tastes and preferences change, there is a powerful underlying impetus for growth that is almost certain to reveal itself in any reasonably well-managed economy.” This is great advice. But it’s also a reason not to invest in stocks in Japan, where population is shrinking and productivity has stagnated. Seen in the context of economic fundamentals, it might not be so surprising that the Japanese stock market has been in more or less secular decline for more than two decades.
Several academic studies have shown that those who trade the most earn the lowest returns. Remember Pascal’s wisdom: “All man’s miseries derive from not being able to sit in a quiet room alone.”
Overtrading is indeed a big killer of individual stock returns. As finance researchers Brad Barber and Terry Odean put it in a landmark 2000 paper, “trading is hazardous to your wealth.”
The single best three-year period to own stocks was during the Great Depression. Not far behind was the three-year period starting in 2009, when the economy struggled in utter ruin. The biggest returns begin when most people think the biggest losses are inevitable.
Long-run predictability is one of the most interesting facts discovered by finance researchers in the last few decades, and it’s what earned Yale economist Bob Shiller his 2013 Nobel. You can indeed make a little extra money by buying stocks when they are cheap and selling when they are expensive. Just remember not to take this strategy to extremes!
Investor Nick Murray once said, “Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” Remember this the next time you’re compelled to cash out.
Definitely. In fact, a growing body of research is finding that chasing returns is a killer for many investors.