The calculating world of investment is probably one of the last places we would expect to find deep philosophical wisdom. Unless we’ve experienced what it’s like to put time, effort and money into something in the hopes of higher returns over time. It quickly becomes a game of understanding probabilities and risk, emotions and human behaviour. Especially our own. When it comes to valuable investment lessons, who best to learn from than some of the most successful investors. Here are 12+1 investment quotes with deeper philosophical meanings; from Warren Buffett to Nassim Taleb and Naval Ravikant.
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1. Circle of Competence
We start our collection of investment quotes with the legendary CEO of Berkshire Hathaway, Warren Buffett. The ‘Oracle from Omaha’ has been in the business for over 70 years. Here’s one of his most memorable pieces of advice:
What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.Warren Buffett
It’s more important that we find out what we’re good at and stick to it to refine our skills. This principle applies to more than just investing. In Circle of Competence: How to Escape Competition Through Authenticity, I’ve written more about how to figure out your field of expertise and how it relates to an idea proposed by Naval Ravikant.
2. Incremental Success
Speaking of Naval Ravikant. The angel investor and philosopher is known for his attempts to square the circle between business success and happiness. In Eric Jorgensen’s The Almanack of Naval Ravikant: A Guide to Wealth and Happiness, Naval explains how he came to wealth and fame:
It has been a slow and steady struggle. I haven’t made money in my life in one giant payout. It has always been a whole bunch of small things piling up. It’s more about consistently creating wealth by creating businesses, creating opportunities, and creating investments. It hasn’t been a giant one-off thing. My personal wealth has not been generated by one big year. It just stacks up a little bit, a few chips at a time: more options, more businesses, more investments, more things I can do.Naval Ravikant
From an outside perspective, success can seem effortless or even a matter of mere luck. In fact, it’s more likely the result of years of hard work and slow, painful accrual of wealth. Sorry. But in case you’re interested, I’ve explored more of his thoughts in my post on 5 Inspiring Naval Quotes: How His Practical Philosophy Can Change Lives.
3. Do What You Deem Important
On to another representative of the next generation of successful businessmen with our third investment quote. Elon Musk is known for his eccentric genius coupled with wild success in revolutionising electric cars and privatising space exploration. This is how the CEO of Tesla and SpaceX explains his motivations:
I always have optimism, but I’m realistic. It was not with the expectation of great success that I started Tesla or SpaceX… It’s just that I thought they were important enough to do anyway.Elon Musk
It seems hyperbolically modest given his wild success. Though, Elon’s sentiment seems to echo the idea behind Warren Buffett’s circle of competence. If persistence is the name of the game, you better find a pursuit of significance, something you’re willing to get after every single day.
4. Money Is Time
The relationship between time and money is another age-old question of wealth creation. Morgan Housel, the author of The Psychology of Money, frames money as a tool of control:
Use money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.Morgan Housel
We’re perpetually trading time for money. When in doubt, we should always buy more freedom to do with our time what we please. Because that gives us the ability to re-invest. But more on that later.
5. Investment and Emotions
Even with time under our control, there’s still a human trait we have to master in: our emotions. Here’s another nugget of wisdom from Naval Ravikant on the subject:
Investing favors the dispassionate. Markets efficiently separate emotional investors from their money.Naval Ravikant
Emotions are short-lived. This is why they’re a bad advisor when it comes to investment decisions. Markets, on the other hand, are neither sympathetic nor hostile towards us. It’s much worse. They’re devoid of emotions, they’re indifferent to us.
6. Fooled By Randomness
On to our next investment quote. To be fair, it’s extremely hard to take our emotions out of the equation, especially when there’s a lot of volatility in the market. Nassim Taleb, a former trader and author of several books on risks and probabilities offers his perspective on this issue:
When an investor focuses on short-term investments, he or she is observing the variability of the portfolio, not the returns — in short, being fooled by randomness.Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
A lot of problems can be solved by thinking more long term. When we’re on an emotional rollercoaster, it can help to step back. Zoom out, remind ourselves of our larger goals and re-evaluate our situation. We might find that we are rather myopic in our assessment. The short term variability was expected but really won’t matter in the long term.
7. Wiser Every Day
Charles T. Munger is another American investor legend without whom our collection of investment quotes wouldn’t be complete. Here are some thoughts on consistency by Warren Buffet’s business partner:
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day — if you live long enough — most people get what they deserve.Charlie Munger, Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
I think we’re starting to see a pattern here. Similar to Naval, Charlie Munger promotes hard work, perseverance and patience. Exhibiting these qualities every day will eventually lead to gains.
On the flip side, you don’t have to be an investment genius to figure out that it’s much easier to lose money than to make it. Morgan Housel again explains why that is:
Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.Morgan Housel, Five Lessons from History
Given this dynamic, it seems natural for us to obsess about losses while any steady gains go largely unnoticed. As Housel concludes, “understanding the speed differences between growth and loss explains a lot of things, from why pessimism is seductive to why long-term thinking is so hard”.
9. Lost Opportunities
Perhaps the only thing worse than losing money is the fear of missing out on opportunities to make more. Here are Charlie Munger’s thoughts on the conundrum investors often find themselves in:
It takes the character to sit with all that cash and to do nothing. I didn’t get to where I am by going after mediocre opportunities.Charlie Munger
As I’ve argued in my essay on making recommendations, the Do-Nothing option is seriously underrated. Taking action feels like progress, which is great. Doing nothing tends to feel like stagnation. And we don’t want that, do we? Indeed, doing nothing comes with its own set of risks. But the truth is, deals don’t have to be made and sometimes no deal is better than a bad deal.
10. Coping With Mistakes
Mistakes and failures are inevitable. Housel’s case for the seductiveness of pessimism may be obvious. But how can we resist those negative feelings? Perhaps a few words from Nassim Taleb’s book Antifragile can put things in perspective:
My characterization of a loser is someone who, after making a mistake, doesn’t introspect, doesn’t exploit it, feels embarrassed and defensive rather than enriched with a new piece of information, and tries to explain why he made the mistake rather than moving on. These types often consider themselves the “victims” of some large plot, a bad boss, or bad weather.
Finally, a thought. He who has never sinned is less reliable than he who has only sinned once. And someone who has made plenty of errors — though never the same error more than once — is more reliable than someone who has never made any.Nassim Nicholas Taleb, Antifragile: Things That Gain From Disorder
Mistakes and failures are not negative per see. It’s how we handle them that makes the difference. The problem is: My summary of Taleb’s thoughts may fit neatly on your fridge magnet. In reality, we have to fail at failing a couple of times until we begin to appreciate how our mistakes have come to define us.
11. Taking Shortcuts
With all that talk about consistency and long-term thinking, it might be tempting to look for shortcuts. Skilful hacks to give us an edge. Paul Graham, investor, author and co-founder of startup accelerator Y Combinator, has a few words on that:
There are tricks in startups as there are in any domain, but they are an order of magnitude less important than solving the real problem.Paul Graham
Hacks and shortcuts work and they can indeed give us an edge. However, as I’ve outlined in my essay on mental shortcuts, at least heuristics are also susceptible to misapplication. If we’re serious about a pursuit, nothing beats substantive slow thinking and problem-solving.
12. The Best Investment
To round off our list of investment quotes, a final word from Warren Buffett. If understanding human behaviour is such an important factor in investing, one of the best things we can do is improve our own habits:
Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.Warren Buffett
Sounds like the one investment to rule them all. I have nothing else to add. Except maybe one last piece of ultimate advice.
BONUS: Ultimate Advice
It goes without saying that none of my musings on the above investment quotes should be taken as financial advice. I’m just a writer trying to think through ideas by scribbling them down. In his inimitable way, Nassim Taleb strikes a similar note:
Avoid taking advice from someone who gives advice for a living, unless there is a penalty for their advice.Nassim Nicholas Taleb, Skin in the Game: Asymmetries in Daily Life
Investing is one of those endeavours where you can’t hide from the cold harsh truth. As losses and potential gains become real, it gets harder for us to delude ourselves and we discover our love for wisdom. The more measurable our life goals are, the harder it is to engage in self-deception about our success.
So in a way, our investment quotes aren’t so much about investing. They contain broadly applicable philosophical wisdom. Only that — by applying this wisdom to the game of finance — the degree to which we have internalised these life lessons is made more quantifiable.