The other day I was reminiscing about two epiphanies that influenced my choices in life.
So back in those days I wanted to be independent. And I figured the best means to independence is money. Not for the sake of being rich. I don’t have to be rich but, rather, independent.
During my juvenile-delinquency-days back in Germany there was a prominent stock market guru who influenced my first steps into the stock markets.
His name was André Kostolany.
Anybody heard of this chap before? I guess he is not so well known in the English speaking world as most of his books and opinion pieces are only available in German or French.
Let me share a bit about Kostolany.
Kostolany – born 1906 in Hungary, but exiled to France and Germany – made most of his money during the reconstruction of Germany after the second world war.
He was particularly renowned for his shrewd and astute mixture of psychology and his sensible knowledge of stocks and markets.
He was as famous for investing as he was for his concise quotations, like this one: “Never run after a bus or a stock. Just be patient – the next one will come along for sure.”
Or this one: “Trading has been and always will be, a hard way to make an easy living.”
In his books he often referred to the alternating interplay between the group of cool, calm and collected investors on the one hand, and the edgy, panicky amateurs on the other.
Those with firm hands buy when the price is low. These people have both time and money, which also fosters strong nerves. The firm hands stick around, are not fazed by the ups and downs of the market and know exactly what they are doing. They make their move at just the right time, buying at the bottom and selling at the top, or at least pretty close (I would love to have ‘firm hands’).
When others sell in panic, desperation or simply because everyone else seems to be bailing out, they buy. The firm hands will then sell again at a massive profit when the market turns around again.
And to whom do they sell? To the shaky hands of course – the nervous small fry with their borrowed money and nasty cocktail comprising of both loss and regret aversions. The shaky handers are anything but movers and shakers, tending to pile onto the freight car when the train has already left the station. They then jump off the runaway train in the middle of a crash.
“Always be fearful, never panic!” – André Kostolany
The theory illuminates a basic principle of equity investing. It is really not for everyone, not the more speculative side, that is. Pretty much everyone should have a sensible proportion of their money in equities, but for the average Joe, just in some kind of broad based ETFs, and no fancy speculation.
Only those with the right psychological make up and sufficient funds can really gamble and take chances. Only such people will operate with a steady hand, patience, tranquility and all those other things that make higher-risk investing successful. And this certainly includes a good technical and factual understanding of the stocks and markets themselves.
It is not all about being cool.
In other words, self-insight is extremely important in the investment industry. It is necessary to know what you can handle nerve-wise, to understand your own mental limitations, to be aware of your cognitive biases. And you need to know what you could actually lose on your investments and figure out if this is viable. If your hands are going to shake, then give it a miss.
What kind of hands do you have?
The speculative stock market – trading in only a few individual stocks – is not for everyone. This applies particularly to large proportions of your wealth, but even with smaller amounts, you need a firm hand and head if you are to do well and sleep well.
All investors need to take some risk, but real speculation is not for the faint-hearted – or should that be “faint-handed”?
My favourite quotes by André Kostolany (freely translated from the original German):
“At the stock exchange 2 + 2 are never 4, but 5 minus 1.” That reminds us that we just have to have the nerves to bear with the minus 1, as stock markets are never linear.
“Who does not own shares, when their prices drop, will not own shares when prices soar.” This quote addresses those non-investors who stand at the side lines for years watching and waiting for the right time to enter the market.
“The one who has heaps of money, can speculate, the one with little money, must not speculate, the one with even less money, must speculate.” We’d better adjust our investment style to our personal financial situation.
“A man can choose different ways to get rid of his fortune: the fastest is the casino, the most pleasurable is with beautiful women and the most stupid is at the stock exchange.” Exactly.
“I can’t tell you how to get rich quickly; I can only tell you how to get poor quickly: by trying to get rich quickly.” There is no get-rich-quick scheme that works. Well, maybe for the creator of that scheme. So don’t be a bug in search of a windshield!
“One could win, one must lose!” There is no gain in the stock market without incurring some losses along the way.
André Kostolany summarized his 70 over years in the stock markets with this one sentence: “49% losses, 51% wins, and lived well from the difference.”