"October is one of the singularly most dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August and September.” – Mark Twain
How did he know this 35 years before the Great Crash of October 1929? And almost 100 years before the Nearly as Dramatic Crash of October 1987? Listen: You want excitement? Arm wrestle. You want a lot of excitement? Watch someone else arm wrestle and bet $50 on the outcome. But with your real money, “playing the market” – trading in and out – is dumb. If you win, you get eaten up by taxes. And why bet against the pros? (Famed investor Michael Steinhardt was once asked the most important thing average investors should know about the stock market. His answer? “That I'm their competition.”
Don't Speculate. Invest in stocks for the long haul via no-load, low expense mutual funds.
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“He is richest who is content with least.” – Socrates
Or, as Marshall Sahlins argued in his book Stone Age Economics , there are two possible courses to affluence: “Wants may be ‘easily satisfied' either by producing much or desiring little.” It is so much wiser to count your blessings than to count your neighbor's money. “Probably the greatest harm done by vast wealth,” observed Teddy Roosevelt in 1902, “is the harm that we of moderate means do ourselves when we let the vices of envy and hatred enter deep into our own natures.” So what if Jerry Seinfeld bought a $32 million house in the Hamptons? Are you going to let that eat at you? A $7,000 flat-screen TV is very nice, I'm sure, but a $200 TV gets you all the same channels.
Forget about keeping up with the Joneses. Live beneath your means and invest what's left over in a 401(k).
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“A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable, problem.” – Warren Buffett
You're probably too young to remember, but in 1963 American Express lost $58 million in “the great salad oil swindle.” Loans that had been made against tanks of oil turned out to be loans against tanks of water, with just enough oil on top to fool the inspectors. Amex stock fell by half. But if you had invested $1,000 in Amex and held on, you'd have well over $80,000 today.
Don't buy a stock when everything looks great. That's often the top. Consider buying when everything looks rotten. (Except that sometimes things are rotten-which is one more reason to stick with a simple lifelong plan of monthly investments through mutual funds.)
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“ Buy straw hats in the wintertime. Summer will surely come.” –Financier Bernard Baruch
Or, as the legendary economist John Maynard Keynes put it, “Very few American investors buy any stock for the sake of something which is going to happen more than six months hence, even though its probability is exceedingly high; and it is out of taking advantage of this psychological peculiarity of theirs that most money is made.”
Think ahead-and be patient
