Investing—History Repeats Itself

Looking for clues from Buffett to Clews—8 keys to success

Key Takeaways

  • No matter how much information and advice investors have at their disposal, they continue to make the same mistakes.
  • From novices to Wall Street professionals, we tend to underestimate the difficulty of investing successfully and consistently.
  • Humans are by nature emotional and irrational. That’s a toxic combination when it comes to our money.

Many of you know Warren Buffett, the billionaire head of Berkshire Hathaway (aka the Oracle of Omaha). Everyone from novices to professional investors heed Buffet’s wisdom because he’s got a great, folksy way of simplifying all the noise we get about the markets and successful investing. What you may not know is that Buffet wasn’t the first to use this approach.

A century ago, Henry Clews wrote about the Wall Street Panic of 1907 and his 50 year career on Wall Street. A financial counsel to President Ulysses S. Grant, Clews helped create War Bonds to finance the Civil War and he offered his readers 8 keys to investing success. It’s amazing how relevant Clews’ tips remain today. For instance–

1. “There is no mental discipline more severe and exacting than that of speculation.” That has not changed. Investing is a difficult business. It’s incredibly difficult to outgain the overall markets.

2. Embrace volatility. You might be thinking, “I’m scared of volatility.” But Clews argued, There has hardly been a year within my recollection when there have not been two or three squalls in ‘the Street,’ during the year, when it was possible to purchase stocks below their intrinsic value.” Sounds an awful lot like today’s bargain-hunting money managers.

3. Be wary of the financial media. Sound familiar? “The utmost caution, scrutiny, and fidelity should be exercised in the procurement and publication of the news.” This is probably even more pertinent today.

4. Information by itself is not enough for success. As Clews argued, Many speculators lose because the information on which they base their operations is insufficient; more because it is false; and others because, while their information is correct, they do not know how to turn it to account.” So true today.

5. “Humility is an important part of long-term investing success. Boldness should be always tempered with caution.” Remember the dot-com crash of the late 1990s and the mortgage crisis of the last decade?

6. “Speculation is a business that must be studied as a specialty, yet the ordinary man, without special training in the business, is liable to make as great a mistake in this attempt.” His point: It is difficult to make money. Professional investors and managers know that. This is one of those classic cases of “leave it to the experts.”

7. Always keep a cash reserve. This has not changed. You always want to keep cash on the side for volatile markets and to make sure you can ride out the storm.

8. History matters because there is nothing new on Wall Street
. “The maxim that history repeats itself has been fully verified in Wall Street.” Buffett, like Clews before him, understood that the behavioral things that we deal with every day—our knowledge and our wisdom—come together to help us gain a successful result over a long period of time.

So until next time, enjoy.

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