Investing Success in Two Easy Lessons

Successful investing can be almost easy: Avoid harmful “accidents” and do what will achieve your own most important long-term objectives. The very human irony is that learning this lesson can take so many years that by the time we “get it,” it may be too late to use the lesson because the powers of compounding need time. Successful investing should be easy. Outcomes show that it is not. But after more than 40 years as an advisor to the leaders of major investment and securities firms, I find that two investment lessons stand out for me as particularly valuable and easy to use. Like career bookends for four decades of continuous learning about investing, one lesson came early and one came late.The late lesson came last summer while I was watching the end of a marathon being run in Munich, Germany. No matter what placement in the race each runner was achieving, each one—on entering the stadium, seeing the crowd, and hearing the scattered but friendly applause—reached high overhead with both arms in the traditional triumphal “Y” and held it for at least half a minute as, grinning in victory, they ran out the final lap. At first, I thought it strange that these runners were acting like victors when they weren’t, but then I realized that each had achieved his or her own realistic goal, so each was a true winner and fully entitled to make the big Y and run the victory lap. In investing, this lesson brings good news: Everyone can win. Everyone can be a winner. The secret is to plan your play and play your plan to win your game.The early lesson came when I was in a training program at a Wall Street firm. One day, the senior partner, Joseph K. Klingenstein, met with all the interns to discuss the Big Picture. We listened quietly—but not, I fear, conscientiously, and at the end of his talk, he asked if we had any questions. After a long silence, finally a voice spoke out: “Yeah, Mr. Klingenstein, I’ve got a question for you. You’re rich, Mr. Klingenstein. We all want to be rich too, Mr. Klingenstein. So, what can you tell us from all your experience, Mr. Klingenstein, about how to get rich like you, Mr. Klingenstein?” A long silence. At first, we feared that Joseph K. Klingenstein was angry, but to our great relief, we realized that he was silent because he was thinking. And finally, he spoke: “Don’t lose.” Indeed. Large losses are forever, and a 50 percent loss requires a double the next time up just to get even. Large losses are almost always caused by trying to get too much and taking too much risk. If you can learn to concentrate on wisely defining your own long-term objectives and learn to focus on not losing as the most important part of each specific decision, you can all be winners over the long term.