Be it in the stock market or real estate, anyone will make money only with proper investment education. With long-term thinking. Not with the mentality of buying one day and regretting the next. But most people find it difficult to think different from the herd. They rejoice when prices rise and get deflated when they fall. Eventually they succumb to fear and greed. But the crux of investment education lies in separating emotion and money.
Any person would generally, unknowingly, buy when it climbs and sell when it drops. That’s not right. Here’s what Peter Lynch reveals from his 20 year record of serving 28% annual returns at his mutual fund. He says most people who invested into his fund did not make much money. Why? They were putting their money in looking at strong performance and selling out when it was weak. By chasing performance rather than results they did not capitalize on the potential of the fund therefore.
Two things that investment education essentially covers are knowledge and conviction, which help go against the herd. Knowledge without conviction is pretty useless while conviction without knowledge can be dangerous. This is where Warren Buffet’s model is good to fall back upon. You might not be aware that Warren Buffet was just 6 years old when he was making money selling soda bottles. In the market he advises to buy investments with safe margins. Buy anything at a discount. Make money because of the buying price rather than the selling price.
Secondly he advocates using Mr Market effectively. Since the prices fluctuate everyday Mr Buffet advises to look but not act. It’s a little like Ted Williams the great baseball player who would swing only at the balls that came within full striking angle. Ted explains that he set out 77 baseball sized cells around the bat and would swing only if the ball fitted into one of those cells. Likewise Warren Buffet says wait for the fat pitch and right time on the perfect investment before you strike.