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Business News/ Money / Personal Finance/  Teachers’ Day 2023: Nuggets of wisdom from the famous investing teacher Jeremy J. Siegel
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Teachers’ Day 2023: Nuggets of wisdom from the famous investing teacher Jeremy J. Siegel

It takes a lot of courage to shape ignorant minds. Jeremy J. Siegel shares in his book some of his most famous investing lessons that he learned from his experience over the years in the stock market.

What do you learn from Jeremy J. Siegel's lessons on investing?Premium
What do you learn from Jeremy J. Siegel's lessons on investing?

Teaching is both an art and a science. A teacher does not merely teach but awakens the desire in his students to learn. Teaching is not a lost art as opposed to how many people believe though good teachers are not much known considering how they make themselves progressively unnecessary.

Indians hold teachers in the highest esteem since ancient times with September 05 being observed as ‘Teachers’ Day’ all over India. Good teachers instill in their students a love for learning, be it any learning in any subject. Take, for example, the famous learnings in personal finance enumerated by Jeremy J. Siegel in his famous book ‘Stocks for the Long Run’.

This famous Professor of Finance at the Wharton School of the University of Pennsylvania in Philadelphia prompts investors to rethink their investment decisions by sharing his experiences in his book. This book written by a teacher cum investor cum advisor is regarded as one of the best investment books by students of value investing, ESG investing, and developments in personal finance.

Some of the best investment lessons for everyone to learn from include:

Invest for the long term

Making long-term investments is a prudent financial choice that can aid in accomplishing your financial objectives, such as securing your retirement, funding education expenses, or saving for a home down payment. By opting for long-term investments, you provide your money with an extended period to flourish, leveraging the benefits of compound interest.

Compound interest possesses the potential to facilitate exponential growth of your finances as time progresses. Here are several advantages associated with adopting a long-term investment approach:

  • Your money enjoys an extended period of growth.
  • Compound interest operates in a favourable manner
  • You can weather the market’s fluctuations
  • Your likelihood of achieving financial objectives increases

Compound interest is essentially the interest you accumulate on your initial investment, coupled with the interest you accrue on the interest you’ve already earned. This dynamic means that your money effectively earns interest on itself, paving the way for substantial growth as time unfolds. The potency of compound interest becomes even more apparent when observed over extended timeframes. This inherent power of compound interest stands as a formidable ally in achieving your financial objectives.

However, it’s crucial to bear in mind that it requires patience. The more prolonged your investment horizon, the greater the window for your money to mature. Therefore, to harness the full potential of compound interest, initiate your investments early and maintain a long-term commitment to them.

Don’t try to time the market

Attempting to predict the market’s movements is an ill-advised strategy. Anticipating when the market will rise or fall is virtually impossible, and even if one could, achieving flawless timing remains highly improbable.

When you endeavour to time the market, you essentially aim to purchase assets at their lowest and sell at their highest points. However, this concept is far more challenging to execute than it appears. Market conditions are in a constant state of flux, making it arduous to identify precise peaks or troughs.

Furthermore, market-timing endeavours can prove to be financially burdensome. Selling investments during market downturns locks in losses while purchasing assets during upswings results in higher costs compared to waiting for better opportunities.

The superior approach to investing is a steadfast commitment to the long term. This entails refraining from market timing and instead focusing on investing in high-quality assets with the potential for long-term growth.

The solution lies in constructing a well-considered asset allocation aligned with your objectives and risk tolerance. Regularly rebalancing your portfolio back to this allocation is key. Establishing a solid plan can help you resist the temptation to liquidate investments during market downturns. Additionally, seeking guidance from a financial advisor can be invaluable in crafting a sound strategy and offering support during periods of market anxiety.

History doesn’t repeat itself, but it often rhymes

Attempting to predict the market’s movements is an ill-advised strategy. Anticipating when the market will rise or fall is virtually impossible, and even if one could, achieving flawless timing remains highly improbable.

When you endeavour to time the market, you essentially aim to purchase assets at their lowest and sell at their highest points. However, this concept is far more challenging to execute than it appears. Market conditions are in a constant state of flux, making it arduous to identify precise peaks or troughs.

Furthermore, market-timing endeavours can prove to be financially burdensome. Selling investments during market downturns locks in losses while purchasing assets during upswings results in higher costs compared to waiting for better opportunities.

The superior approach to investing is a steadfast commitment to the long term. This entails refraining from market timing and instead focusing on investing in high-quality assets with the potential for long-term growth.

The solution lies in constructing a well-considered asset allocation aligned with your objectives and risk tolerance. Regularly rebalancing your portfolio back to this allocation is key. Establishing a solid plan can help you resist the temptation to liquidate investments during market downturns. Additionally, seeking guidance from a financial advisor can be invaluable in crafting a sound strategy and offering support during periods of market anxiety.

Let your winners run

The concept of “Let your winners run" is a widely embraced investment strategy that advises investors to resist the urge to prematurely sell their successful stocks. The core idea is that if you have confidence in a stock and it is performing well, it’s wise to allow it the opportunity to continue its growth trajectory.

Several reasons underscore the benefits of this strategy. Firstly, it enables you to maximise your potential profits. Selling a high-performing stock too early might mean missing out on further appreciation. Secondly, it helps you steer clear of emotional decision-making. When you witness your stocks generating gains, the temptation to sell and secure profits can be strong. However, taking a step back and making rational assessments often reveals that letting your winning investments persist is a sounder choice.

Certainly, there’s no guarantee that a successful stock will indefinitely climb in value. Nevertheless, if you’ve conducted thorough research and possess faith in the company’s prospects, allowing your winners to run is a prudent strategy. This approach entails identifying strong companies and steadfastly maintaining your positions over time, potentially yielding significant multiples of your initial investment.

Invest periodically

Engaging in regular market investments is a prudent approach. This practice is known as rupee-cost averaging, and it serves as a strategy to mitigate the market's fluctuations and reduce your exposure to risk.

When you invest consistently, you essentially purchase more shares when prices are lower and fewer when they are higher. This method ensures that you don't acquire all your shares at once, which can be disadvantageous during market downturns.

While this strategy is straightforward, it proves highly effective. If your goal is a long-term investment, it's a strategy worth considering. Here are some advantages of periodic market investments:

  • Smoothing out market volatility
  • Lowering overall risk
  • Sustaining a long-term investment commitment
  • Offering a straightforward and automated investment approach.

In addition to regular investments, it's essential for investors to conduct periodic portfolio reviews. There are several compelling reasons to perform these reviews regularly:

  • Maintaining an optimal asset allocation
  • Aligning your portfolio with evolving life goals
  • Capitalising on market dynamics.

Furthermore, periodic portfolio reviews can be instrumental in tax planning, as they allow you to adjust your investments to potentially reduce your overall tax liability if necessary. The frequency of portfolio reviews may vary depending on your specific needs and investor profile, but a general guideline is to aim for reviews every six months to a year.

Buy when there’s blood in the streets

The original quote is commonly attributed to “Buy when there’s blood in the streets, even if the blood is your own."

This epitomises the essence of contrarian investing, where the prevailing conviction is that the grimmer the market conditions appear, the more auspicious the prospects for financial gain become.

While many investors seek only triumphant assets for their portfolios, Warren Buffett cautioned against this, stating, “You pay a very high price in the stock market for a cheery consensus." In simpler terms, if everyone concurs with your investment choice, it's likely not an advisable one.

There are several compelling reasons why this approach can prove advantageous. Firstly, it can enable you to acquire stocks at a discounted rate. During market downturns, stocks often trade below their intrinsic value, offering an opportunity to purchase them at a lower cost and potentially yield profits when the market rebounds.

Secondly, it aids in steering clear of impulsive, emotionally driven investment decisions. In times of market decline, the temptation to sell stocks can be strong. Nevertheless, maintaining composure and purchasing stocks when the market is down enhances the likelihood of long-term profitability.

Naturally, there's no absolute assurance of a market recovery. However, if you've conducted thorough research and maintained confidence in the companies you're investing in, the strategy of buying during market downturns stands as a prudent choice.

Always stay rational

Maintaining a rational mindset in the stock market is paramount. The market's volatility can trigger emotional impulses when it experiences fluctuations, whether upward or downward. One effective approach involves assessing companies' long-term value before committing to investments. A straightforward guideline is to consider purchasing profitable companies with low price-to-earnings or price-to-book ratios, especially if they exhibit robust growth prospects. For most investors, the key is emphasising long-term value over transient price swings.

Here are some strategies to help you stay level-headed in the stock market:

Thorough research: Prior to investing in any stock, conduct comprehensive research to grasp the company's fundamentals. This diligence helps you avoid impulsive decisions influenced by short-term price shifts.

Establish a plan: Before initiating your investment journey, create a well-defined plan encompassing factors such as your investment budget, preferred stock types, and your intended investment duration. Stick to this plan steadfastly.

Avoid panic selling: It's natural to feel apprehensive when the market experiences downturns, but maintaining composure is crucial. Resist the urge to hastily liquidate your investments. Remember, markets fluctuate over time, and a long-term commitment often leads to favourable outcomes.

Avoid chasing trends: Pursuing stocks solely because they are currently rising can be perilous. Instead, concentrate on investing in companies with solid, long-term prospects that you genuinely believe in.

Embrace a long-term perspective: Acknowledge that stock market investing is a long-term endeavour. Instant riches are unlikely. Focus on a sustained, long-term investment strategy, allowing you to navigate through market fluctuations with patience and resilience.

The best teachers will tell you where to look but will not tell you what to look for. They do not fear to share stories of their failures while ensuring timely feedback on what you do. Most importantly, the best teachers will not question if you can learn but will kindle in you the desire to learn more and imbibe from the best.

 

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These are the key lessons one can learn from the bestselling book.
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These are the key lessons one can learn from the bestselling book.

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Published: 05 Sep 2023, 01:17 PM IST
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