The ancient Greeks had their Oracle at Delphi and the Pharaoh has his famed Magicians of Egypt.
In fact, wise counsel has fueled some of the greatest civilizations in world history.
So where are the oracles of Wall Street today – and better yet, what message do they have for investors struggling to make sense of one the most chaotic financial markets on record?
It turns out they have plenty to say. In fact, we can all do ourselves a favor by absorbing the best advice from some of Wall Street’s wisest sages; gurus like Warren Buffett, Benjamin Graham, Peter Lynch, and scores of others. In doing so, we see how Wall Street history – and the wise men who lived and studied it – can show us a better way. Let’s peer inside the best financial minds out there and see what we can learn about today’s markets…
Benjamin Graham, Father Of Value Investing
On investing in volatile markets:
“Most of the time stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble…to give way to hope, fear and greed.”
Graham’s chief maxim was that market valuations (stock prices) are often wrong. He often turned to his legendary “Mr. Market” parable to cut to the core of his argument: stock prices will fluctuate substantially in value. Graham believed that volatility, even like we’re seeing now, gave investors “an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”
Peter Lynch, Legendary Investor And Former Portfolio Manager; Fidelity Magellan Fund
On keeping a long-term view in bear markets:
“A lot of people think long-term investing is three weeks from next Wednesday, but when I talk about long-term investing I mean 5, 10, 20 years. During that length of time the market can experience ups and downs due to what I call “background noise.” Events occur – hurricanes, wars, political instability, currency and bank crises – that make investors nervous and cause market volatility. It does get nasty at times, but it shouldn’t cloud investors’ judgments about thinking long-term. The key organ here is your stomach. Everyone has the brainpower, but not everyone has the stomach for it.”
Peter Lynch is a staunch advocate of investing in what you know – and leaving emotion out of it – As the portfolio manager at the legendary Fidelity Magellan fund, Lynch stuck to due diligence and thorough stock research in tough economic times (and even in good economic times). He was particularly adept at shutting out market noise and focusing on a company’s business fundamental. Lynch only invested for the long run and didn’t pay any heed to the short-term market fluctuations we’re seeing today.
Warren Buffett: Chairman, Berkshire Hathaway
On fear-based investing:
“Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
No matter what the stock market is doing, good or bad, Buffett’s investment philosophy is also attractively simple. He believes that investors should be buying a business, not simply a stock. John Train, author of “The Money Masters” gets right to the heart of Buffett’s investment style: “The essence of Warren’s thinking is that the business world is divided into a tiny number of wonderful businesses – well worth investing in at a price – and a large number of bad or mediocre businesses that are not attractive as long-term investments. Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts.”
The Folly of Timing the Market
Graham, Buffett and Lynch all were fierce opponents of marketing timing. Their mindset was that even though the stock market is extremely volatile, it doesn’t help to try and jump in and out of it.
This chart illustrates a $10,000 investment in the S&P 500 Index from Dec. 31, 1994 - Dec 31, 2004.
Period of Investment | Average Annual Total Return | Growth of $10,000 |
|---|---|---|
| Fully Invested | 12.07% | $31,260 |
| Miss the Best 10 Days | 6.89% | $19,476 |
| Miss the Best 20 Days | 2.98% | $13,414 |
| Miss the Best 30 Days | -0.39% | $9,621 |
| Miss the Best 40 Days | -3.19% | $7,233 |
| Miss the Best 60 Days | -7.90% | $4,390 |
Source: Factset Research Systems as provided by AIM Distributors, Inc.
Above All, Stay Cool
As investors in volatile times, we can learn much from Graham, Lynch, and Buffett, especially by sticking to the following themes:
- Stick to your plan: Don’t chase investment returns, especially those deemed “hot” by street prognosticators. Consult your WrapManager wealth strategist to craft a plan that works for you, and stick to it – no matter what.
- Markets are volatile: Stuff happens, particularly in the financial markets. Don’t react to market crises emotionally – keep a cool head and stick to your long-term plan.
- No market timing: Leave the crystal ball to the fortunetellers. Studies show that market timing is a loser’s game, especially when compared to long-term investment strategies.
- Take the long view: It’s tough to stay calm in a volatile market, but patience really is a virtue on Wall Street. Exhale and remember that stocks historically reward long-term investors.
The wisdom of the Wall Street greats is well worth listening to at any time. But now, with the financial markets roiling, take heed and listen to what wise men like Buffett, Lynch, and Graham, have to say. Chances are your portfolio – and your nerves – will be better off for it.
The attached report and information have been prepared or produced by WrapManager, Inc. from sources and data believed to be reliable. Information provided in this report is for educational and illustrative purposes only and should not be construed as individualized investment advice, as an offer to sell, or the solicitation of an offer to buy any security in any states where such an offer or solicitation would be prohibited by regulations. WrapManager, Inc. is not a tax advisory firm. We recommend you contact your tax attorney or CPA prior to utilizing any of the tax-related strategies mentioned or discussed. Returns and experiences will vary for each client. Each client’s risk tolerance and investment objectives are unique to them. Past performance may not be indicative of future results. No assumption that future performance of any specific investment or product made reference to directly by WrapManager, Inc., on its Web site and in marketing materials, will be profitable or equal the corresponding indicated performance level(s). If performance numbers are generated gross of fees, a client’s return will be reduced by investment advisory fees and any other expenses. Opinions expressed are those of WrapManager, Inc. and are subject to change without notice and are not necessarily those of Prospera Financial Services, Inc., its directors, parent company or its affiliates. Securities offered through Prospera Financial Services and cleared through First Clearing, LLC. Prospera Financial Services - Member FINRA/SIPC.