This Is Warren Buffet's "Fourth Law Of Motion"
This Is Warren Buffet's "Fourth Law Of Motion"
When it comes to investing advice, you can place your trust in Warren Buffett. Hailed as one of the greatest investors of all time, Buffett knows the ins and outs of the game, and he's always been open to sharing his knowledge and expertise with others in a way that is easy to understand.
Over a decade ago, Buffett made an analogy in his letter to Berkshire Hathaway shareholders that has resonated with many people, even to this day:
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."
Turns out, on top of his game-changing contributions to science and physics, Newton was also a rather successful investor; that is before he was defeated by transient fluctuations in the stock market. At one point, he set aside his long-term investment plan in favor of short-term strategies with the hope that he could maximize his gains and minimize his losses in accordance with jumpy trends.
As tempting as it can be to exploit those rare opportunities, opting for Newton's approach comes with the incredibly high risk of mistiming the market and causing your long-term returns to suffer as a result.
The lesson here is summarized by Sam Ro of TKer.co: "With every trade comes not one, but two decisions. If you decide to buy, then you also have to know under what conditions you would decide to sell.
"Similarly, if you’re thinking about trimming your exposure to stocks because you think the market will go lower in the short-term, then you also have to consider under what conditions you would buy to get back to your target long-term asset allocation."
In any case, it is always best to consider all scenarios and prepare backup plans to reduce your risk and protect your long-term goals.
READ MORE
Retiring at 40 isn't a pipe dream, and you don't have to be a tech genius, Wall Street bro, or pro athlete to do it. But you have to follow the habits of those who've done it before.
Major corporations seem so stable. That's why shocking corporate meltdowns are so compelling. Here are 10 of the worst ever.
Discover the 10 unmistakable signs that you might be facing financial difficulties. From living paycheck to paycheck to avoiding bills, this article delves into the indicators of being broke and offers insights into understanding and assessing your financial health.
Explore ten straightforward and effective ways to significantly cut your water bill, each supported by savings statistics, and gain insights into common water-wasting habits and the cost structure of water bills. This guide offers practical advice on water conservation, helping households to be more water-efficient and financially savvy.
Explore the lucrative world of vintage sports cards with a deep dive into 10 cards that have skyrocketed in value over the years. From baseball legends to basketball icons, uncover the stories and prices behind these treasured collectibles.
Discover 10 clever ways to save money with your old phone! From repurposing it as a security camera to turning it into a dedicated music player, this article unveils creative ways to make the most out of your old device. Don't let your retired phone gather dust—unlock its hidden potential and start saving today!
Disclaimer
The information on MoneyMade.com is intended to support financial literacy and should not be considered tax or legal advice. It is not meant to serve as a forecast, research report, or investment recommendation, nor should it be taken as an offer or solicitation to buy or sell any securities or adopt any particular investment strategy. All financial, tax, and legal decisions should be made with the help of a qualified professional. We do not guarantee the accuracy, timeliness, or outcomes associated with the use of this content.
Dear reader,
It’s true what they say: money makes the world go round. In order to succeed in this life, you need to have a good grasp of key financial concepts. That’s where Moneymade comes in. Our mission is to provide you with the best financial advice and information to help you navigate this ever-changing world. Sometimes, generating wealth just requires common sense. Don’t max out your credit card if you can’t afford the interest payments. Don’t overspend on Christmas shopping. When ordering gifts on Amazon, make sure you factor in taxes and shipping costs. If you need a new car, consider a model that’s easy to repair instead of an expensive BMW or Mercedes. Sometimes you dream vacation to Hawaii or the Bahamas just isn’t in the budget, but there may be more affordable all-inclusive hotels if you know where to look.
Looking for a new home? Make sure you get a mortgage rate that works for you. That means understanding the difference between fixed and variable interest rates. Whether you’re looking to learn how to make money, save money, or invest your money, our well-researched and insightful content will set you on the path to financial success. Passionate about mortgage rates, real estate, investing, saving, or anything money-related? Looking to learn how to generate wealth? Improve your life today with Moneymade. If you have any feedback for the MoneyMade team, please reach out to [email protected]. Thanks for your help!
Warmest regards,
The Moneymade team
