Six quotes to make you a better investor

These words of wisdom come from famous people outside the realm of investing, but they can still help you and become better investors.

Life is simple, but we insist on making it complicated.

—Confucius (attributed)

Contrary to modern thinking, investing does not require an understanding of financial derivatives, such as collateralized debt obligations and their even more convoluted offspring, CDOs squared.

These financial instruments were accompanied by 750,000 pages of legal documentation, which were impossible to fully analyze. When the financial crisis of 2008 hit, it became evident that nobody really knew what they were getting into when most of these instruments became worthless.

Instead, it’s best to invest within your circle of competence. We can’t all be expert investors, but we can certainly gain an edge by investing in businesses we understand.

Opportunity often comes disguised in the form of misfortune or temporary defeat.

—Napoleon Hill

The key to investing wisely is to buy and hold good companies but also not to pay a lot for them.

Stocks that are cheap are usually accompanied by some form of calamity—whether it’s a full-blown market crisis or a company-specific issue. Use these opportunities to pick up great stocks at discounted prices.

All that is gold does not glitter.

—J.R.R. Tolkien

Cheap stocks have historically beaten the market. Underlying business fundamentals are more important than whether the intrinsic value of investments is instantly reflected in the stock price.

Remember, having an understanding of the business and its potential value should provide you with the confidence and conviction to make investments when stocks are selling at a bargain.

So while the stock may not look like gold now, its value will eventually come shining through.

All men’s miseries derive from not being able to sit in a quiet room alone.

—Blaise Pascal

All investors aim to buy low and sell high, but few manage to follow through. The problem is they look for instant gratification—if investment expectations are not readily fulfilled, they’ll quickly move on, no matter the cost.

But while it’s tempting to jump in and out of the market, you should wait until the price is right. When you do buy, it should be with the intention of keeping the shares for a long time. In fact, inactivity can be the key to success—Warren Buffett himself confirms as much.

Mistakes are always forgivable, if one has the courage to admit them.

—Bruce Lee

Even the most renowned investors make mistakes. Buffett is no exception. Against the advice of GEICO (a Berkshire-Hathaway subsidiary) executives, he decided to offer a credit card to policyholders.

But after $6.3 million in losses, Buffett pulled the plug and sold the rest of the troubled lending portfolio for 55 cents on the dollar. In total, the blunder resulted in a $50-million loss. GEICO nonetheless posted a $649-million underwriting profit.

No matter how large or small the mistake, it’s important to recognize and learn from it.

A jug fills drop by drop.

—The Buddha

Everyone wants a fast track to riches, but fortunes are more often made by being patient and harnessing the power of compounding.

If you invest $1 million in a fixed-income security that pays 6% interest on the original balance and keep it for 20 years, you’d end up with $2.2 million. But if you invest in a similar instrument that pays 6% interest, compounded annually (interest paid on the original investment and interest earned), you’d have an account worth $3.2 million after 20 years.

The more time you allow your investments to compound, the better. As capital rolls over each year, it builds upon itself, becoming exponentially bigger.