Tutorial 1-5 Recap
1) PRESERVE CAPITAL - You will notice that all of the Investment Masters focus on the downside first. The reasons are two fold. Firstly losses impede the function of compounding which is the key to investment success. Secondly, profits and losses are not symmetrical. If you lose 50% it takes a gain of 100% to get you back to square. Despite this, the majority of investment funds available today are attempting to beat an index and do not contain an objective to preserve capital.
2) COMPOUNDING - The secret to long term investment success is compounding. It is imperative that you spend the time to understand the sheer power of compounding and the impact a few extra percentage points of annual return can have over a lifetime. An investor must make sure they do not detract from this power. The key detractor to compounding is losing capital and that is why preserving capital is such a focus of the Investment Masters. Understanding compounding shows why the notion of doubling your money every year for example is an absurdity.
3) ART OR SCIENCE? - Investment Masters typically consider investing an Art rather than a Science. Very few Business Schools study great investors yet all Arts schools study the Great Masters [Picasso, Monet, Leonardo Da Dinci, Raphael etc] and History. If Investing was a science, results would be able to be replicated and taught in a textbook. All of the great investors would be PHD’s in finance or CFA’s. They are not.
4) EDUCATION AND SMARTS - Many of the great investors don’t believe you need to be a rocket scientist to succeed in investing. In fact many believe the traditional schooling methods are detrimental to investment success. The skills to succeed in investing are not taught in most business schools [We will quickly discredit the Efficient Market Thesis in a future tutorial].
5) MAGIC FORMULAS - There are no magic formulas for investment success. Don’t waste your time buying books that promise to do so. Despite this, the track record of the Investment Masters highlights it is possible to compound capital at high rates of return over time with astonishing results. There is a common thread that runs through many of the great investors thoughts and processes which will become even more evident as you progress through the tutorials.