“The only thing you can be confident of while forecasting future stock returns is that you will probably turn out to be wrong.”
“There seems to be some perverse human characteristic that likes to make easy things difficult.”-Warren Buffett
“Only when you combine sound intellect with emotional discipline do you get rational behavior.”-Warren Buffett
Human behaviour… I don't know I don't care
The purpose of this section is to supply, in the form suitable for laymen, guidance in adoption of a way to protect what you save and invest. The knowledge of how little you can know about the future, coupled with the acceptance of your limited knowledge about investments, is your most powerful defence. With time you will realize that the most powerful response a passive investor could ever have about the stock market is: “I don't know, I don't care”.
Even though investors all know they're supposed to buy low and sell high, in practice they often end up getting it backwards. Instead of buying and holding their stocks, many people end up buying high, selling low, and holding nothing but their own head in their hands.
For better or worse, the gambling instinct is part of the human nature you will have to try suppress it. That's the single best way to make sure you will never fool yourself by confusing speculation with investment. The more enthusiastic investors become about the stock market in the long run, the more certain they are to be proven wrong in the short run.
Become financially independent in the long-term... doesn't sell
Everybody knows the solution to obesity is to eat healthy and exercise, but that implies a lifelong commitment. What people want and what you see in every commercial is a quick diet to get rid of their extra pounds so they can eat a little more and ultimately start all over again... That is what sells, but beneath all diet or exercise programs out there is always the same eat healthy and exercise, go figure.
Quick money schemes don’t work but it is what sells and that’s why you always hear about them. If they did work people wouldn’t have money problems, would they!!!
The only way to maximize your savings returns while reducing risk despite the ups and downs in the economy is to adopt the following investment principles:
1. Invest Early (Compound interest)
2. Invest Regularly (Dollar Cost Averaging)
3. Stay Invested (Long term investing)
4. Asset Allocation & Diversification
5. Investment Rebalancing
Remember: Since you cannot predict the behavior of the stock market, you must learn how to predict and control your own behavior.