# Lessons not well known in Investing



## dogcom (May 23, 2009)

1. Diversification is very important.
Lesson here is it did no good in the crash.

2. Gold is barbaric and blah, blah, blah
Guess what it did great this decade because it is in a bull market stupid.

3. The market is efficient 
No it is manipulated 

4. I am confident because I studied and I know.
No the market is manipulated and you do not know. Look at all the experts and very smart people who get it wrong all the time.

5. I buy safe dividend paying stocks.
So did all the people in the US that got screwed over.

6. You can never trust anyone and everyone is out for themselves.
Very true in the stock market and in business.

7. Keep an open mind no matter how crazy it sounds.
True, you say they are all idiots but in the end you are the idiot. This happens in sports all the time when you think you can easily beat the worst team in the league you end up losing.


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## mogul777 (Jun 2, 2009)

The market is efficient, but not over short time periods. Things will revert to the mean eventually. This is simple fact. No one can manipulate the market to a great enough extent for a great enough timeframe... or at least no one will care to do this for several years as numerous better "opportunities" will always appear.

The crash only affected the US?? I think you mean so did people everywhere...


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## dogcom (May 23, 2009)

Mogul777 the person who is the most fun here, and I am not joking, apparently there is 600 billion invested in the US market that is not accounted for in 2009 and that counts institutions, mutual funds, hedge funds and so on. I believe there is money to be made but we are in an end game as the US and many other countries are bankrupt. So I believe we could be in the period of make believe at this point.


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## ssimps (Dec 8, 2009)

Replying to the OP's points in numbered order...

1. I think it is over the long term, nothing is safe over the short term is what the crash taught me (other than principal protected make little money stuff of course). In the crash I still has 50% in bonds and 50% in 'diversified stocks. My loss during the crash was about 20%, no surprise really, since 50% of my portfolio was in bonds. 

2. No input; no 'knowledge' to add.

3. Again, over the short term it can be very inefficient, especially in the age of retail investors who can not keep their emotions together, Media does not help. The crash showed us this and so has the rapid recovery. 
Over the long term I think that the markets are mainly efficient. I don't think we have seen the end of this crash though, today is today, 6 - 12 months from now it could be back again.

4. I agree that no one should believe they know everything and do not need to continue to learn and adapt. We live in a world that is changing constantly, and so do we.

5. I buy safe dividend paying stocks. Yes I do, they make up a good part of my stock side of my portfolio. I like getting tax efficient $ every quarter from companies that have been around and have shown that they can keep paying and increasing their divs. It also helps me not freak out when the stock price drops; in fact it makes me want to buy more because the yield has gone up.  Again, short term the crash taught us that no stock is safe, but that is not long term. I also think the crash was a great opportunity for many people, but not all I understand. I also think that some companies that cut their div. did the right thing, so just because they are not on a special list of div companies does not mean I will not keep them.

6. I wish I could disagree with this, but it does seem to be mostly the case.

7a. Keep an open mind - yes, this is totally true and is part of never thinking that you have nothing to learn.

7b. no matter how crazy it sounds.
Here I can not totally agree, in some cases you are liekly correct, in others you are not. If you bought into every crazy get rich quick scheme that was presented to you, you would more likely become broke than rich 

Great thread by the way.


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## Brad911 (Apr 19, 2009)

dogcom said:


> 1. Diversification is very important.
> Lesson here is it did no good in the crash.


Diversification worked out just fine for me. It depends on how an investor diversifies. Just because you hold 30 individual stocks doesn't mean you've diversified well if over 50% of those stocks are in one sector or correlated to each other very closely. There are numerous ways to diversify risk adequately so that downside risk is minimized. You won't keep everything safe, but there are strategies that certainly help to minimize the impact as seen over the past 18 months.



> 4. I am confident because I studied and I know.
> No the market is manipulated and you do not know. Look at all the experts and very smart people who get it wrong all the time.


Those people on TV and radio want their voice heard so they'll say what they know people want to hear. Book smarts could give you an edge but common sense doesn't get enough credit IMO. There are investors out there who chased returns with no element of common sense. If they get burned then they can't blame anyone else because if it was too good to be true or risky then they understood the potential outcome of their actions or decisions.



> 5. I buy safe dividend paying stocks.
> So did all the people in the US that got screwed over.


Dividends don't equal safe. Maybe more stable than others, but aside from the financials and other economically sensitiive businesses there were lots of companies that did relatively well and continue to pay dividends. The key as mentioned above is to ensure that you're adequately diversified.



> 6. You can never trust anyone and everyone is out for themselves.
> Very true in the stock market and in business.


I trust the management in a lot of the companies I own; otherwise I wouldn't own shares in those companies. In business there are lots of individuals (and businesses) that conduct themselves in an ethical and transparent way. How I present my content on my website and in my consulting activities is kept to a high standard. Clients and the public need to ensure that an clear conflict of interest doesn't exist before taking advice. Too often individuals assume too much and then make generalizations which can relate to a small portion of a group, but not to everyone.


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## dogcom (May 23, 2009)

Many people on this forum should print out and cut out what you said brad911 because it would direct them onto the right path with many of the questions they need to ask about investing. It is hard to do the leg work and study a company and its management properly to have a trust in them which is important if you want to buy stocks instead of ETF's.

I believe FTS was one of those companies that dropped some but not a huge amount in price during the crash but continues to go on and pay the dividends.

Ssimps you are right, you must be wary if the crazy means some get rich quick ideas.


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## CanadianCapitalist (Mar 31, 2009)

dogcom said:


> 1. Diversification is very important.
> Lesson here is it did no good in the crash.


Well, depends on what investors meant by "diversified". If they just meant that they hold a bunch of stocks even across geographies and sectors, it is still stocks and stocks have shown a tendency to go down together in the past. It will be wise to assume that it could well happen again in the future.

In the 2008-09 bear market bonds did their job by holding up value, so diversification didn't entirely fail investors.



> 2. Gold is barbaric and blah, blah, blah
> Guess what it did great this decade because it is in a bull market stupid.


One of the lessons in investing for me is that just because the market is right in the recent past doesn't necessarily mean the investor is wrong. Bull market or not, gold is a speculative investment vehicle. Its value depends on what someone will pay in the future and unlike stocks or bonds does not provide an ongoing income stream.



> 3. The market is efficient
> No it is manipulated


I don't buy the theory that markets are efficient all the time either. However, I doubt if most investors have the emotional fortitude to rationally exploit market inefficiencies. Exactly, how many Warren Buffett types are out there? My guess: not very many.



> 5. I buy safe dividend paying stocks.
> So did all the people in the US that got screwed over.


The notion that all a stock has to pay a dividend and you can buy it with your eyes closed always sounded goofy to me. It still does.



> 6. You can never trust anyone and everyone is out for themselves.
> Very true in the stock market and in business.


There are all sorts of ethical people in business and in investing who take their fiduciary responsibilities very seriously. There are also bad apples masquerading among them, so if you put your trust in someone, make sure they deserve it.


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## Sampson (Apr 3, 2009)

CanadianCapitalist said:


> I don't buy the theory that markets are efficient all the time either. However, I doubt if most investors have the emotional fortitude to rationally exploit market inefficiencies. Exactly, how many Warren Buffett types are out there? My guess: not very many.


Even Warren Buffett was *not* acting quite like Warren Buffett. 

Had he put his money into the shares of GE and GS instead of debt, he'd be way ahead. I guess he was a little troubled by the deleveraging too.


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## bean438 (Jul 18, 2009)

My 2 cents worth, some which has already been said:



dogcom said:


> 1. Diversification is very important.
> Lesson here is it did no good in the crash.
> 
> Depends on your situation , and what you are trying to achieve. I am 100% equity, but I have a DB pension which I consider "fixed income".
> ...


Not sure what you mean by point #7 so i respectfully decline comment.


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## SixesAndSevens (Dec 4, 2009)

_7. Keep an open mind no matter how crazy it sounds.
True, you say they are all idiots but in the end you are the idiot. This happens in sports all the time when you think you can easily beat the worst team in the league you end up losing._



bean438 said:


> Not sure what you mean by point #7 so i respectfully decline comment.


I believe that point simply means that don't be cocky.
What makes someone think that they are smarter than the overall market and the other 5.999 billion people on the planet.
If someone is cocky and overconfident and thinks that everyone else is an idiot (as per the quote above), in the end he/she might get to bite the dust/eat crow etc.
Hence the example of being overconfident of beating a down team and then end up getting licked.


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## canadianbanks (Jun 5, 2009)

dogcom said:


> 3. The market is efficient
> No it is manipulated


While I agree that stock and other markets are manipulated (sometimes heavily), I still think that this cannot be done indefinitely. At some point the manipulation ends and the farther it went the worse the snap back. I think that we'll see world stock markets go significantly down this year, but this time they'll stay down for much longer possibly years.


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## bean438 (Jul 18, 2009)

SixesAndSevens said:


> _7. Keep an open mind no matter how crazy it sounds.
> True, you say they are all idiots but in the end you are the idiot. This happens in sports all the time when you think you can easily beat the worst team in the league you end up losing._
> 
> 
> ...



Well all the points made sense, but i still think he went off the rails at number seven. I still do not understand, and thus decline to comment.


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## dogcom (May 23, 2009)

Thanks sixes and sevens for explaining that for me and I do agree that it is a little off the rails as bean438 said. The reason is I like to add a little shock factor to spice it up a little. The point is you will hear ths doomsday crowd spouting thier stuff and most of the time you let it slide off but at the same time keep an ear to it because sometimes you pick up stuff that will challenge your views.

One example could be the junior gold mining sector which you wouldn't consider most of the time. Well at this moment the big producers are looking to add these juniors so they can increase their production down the road. This could be explosive for some of these companies if you can find well managed ones.


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## kangyu (Jan 26, 2010)

Thanks sixes and sevens for explaining that for me and I do agree that it is a little off the rails as bean438 said. The reason is I like to add a little shock factor to spice it up a little. The point is you will hear ths doomsday crowd spouting thier stuff and most of the time you let it slide off but at the same time keep an ear to it because sometimes you pick up stuff that will challenge your views.

One example could be the junior gold mining sector which you wouldn't consider most of the time. Well at this moment the big producers are looking to add these juniors so they can increase their production down the road. This could be explosive for some of these companies if you can find well managed ones.


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## MoneyMaker (Jun 1, 2009)

markets are mainly efficient but in the long-term price follows value


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## Berubeland (Sep 6, 2009)

Did everyone miss that news story about Goldman Sach's software debacle where their proprietary software went missing and they freaked out because it "could" be used to manipulate markets.

I sleep better at night knowing that the fine moral people at Goldman Sachs are the only one who have their fingers on this. They have shown themselves to be of the finest caliber and will safeguard us all from market manipulation. 

http://www.correntewire.com/so_if_g...ter_it_was_stolen_did_gs_use_it_manipulate_ma


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## MoneyMaker (Jun 1, 2009)

Berubeland said:


> Did everyone miss that news story about Goldman Sach's software debacle where their proprietary software went missing and they freaked out because it "could" be used to manipulate markets.
> 
> I sleep better at night knowing that the fine moral people at Goldman Sachs are the only one who have their fingers on this. They have shown themselves to be of the finest caliber and will safeguard us all from market manipulation.
> 
> http://www.correntewire.com/so_if_g...ter_it_was_stolen_did_gs_use_it_manipulate_ma


I'm sure every large investment management company has their own 'black box' quant system in place.. I have no idea if they are hugely profitable or not in the long run however there have been spectacular FAILS such as the Long-Term Capital Management debacle


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