“Never Invest in Anything That Eats or Needs Repainting”… and More Shrewd Advice From Famous Investors

“Buy when blood is running in the streets.”—Baron Rothschild

The lesson: In times of investor panic, we can either panic along with the crowd or buy at bargain prices. Buying is often a wise move, but it’s psychologically difficult to buy when everyone else is selling. One way to overcome this difficulty is to recall that buying when the news is bleak has helped some of the most successful investors in history build their fortunes.

“In a bear market, he who loses the least, wins.” —Richard Russell, longtime publisher of Dow Theory Letters

The lesson: Whenever there’s a bear market, we hear stories of investors who saw it coming and made money by betting against stocks, bonds, real estate, gold or whatever assets lost value. These stories make us feel worse about our losses and might inspire us to bet against the markets in the future. But short selling—which involves betting that share prices will fall—is extremely treacherous, too risky for most investors.

Rather than compare ourselves to the very small number of investors who profited during a bear market, we should compare ourselves to the large number who lost more than we did and consider it a victory that our balanced, prudent portfolios came through as well as they did.

“If you wait for the robins, spring will be over.”—Warren Buffett

The lesson: If we wait for a company to announce good news before buying its stock, we may be too late to reap the profits. If we keep our money on the sidelines when the market struggles and all the economic news is bad, we probably still will be on the sidelines when the rebound begins—and those initial days of a recovery often are when the market records its biggest gains.

“The stock market has forecast nine of the last five recessions.”—Paul Samuelson, Nobel Prize-winning economist

The lesson: Big investors and well-known analysts who move the market often try to predict what’s ahead rather than reflect on what’s already happened, but that vision often is inaccurate. Those who warn of imminent economic collapse inevitably attract attention, but as investors, we should resist the urge to automatically heed their advice. If you look closely, you’ll see that they’re wrong at least as often as they’re right.

“Never invest in anything that eats or needs repainting.”—Billy Rose, composer and investor

The lesson: Any investment that depends on repeated infusions of cash probably isn’t as good an investment as it first seems. Even if we try to take these ongoing expenses into account, there’s a good chance that we will underestimate them.

Example: Those who are tempted to take advantage of today’s beaten-down real estate prices by becoming landlords should speak to a few ­other landlords first to get a clear picture of what they may be getting themselves into.

“Nobody spends somebody else’s money as carefully as he spends his own.”— Milton Friedman, Nobel Prize-winning economist

The lesson: There is nothing wrong with working with an investment adviser or broker—but hiring a financial professional does not free us from a personal responsibility to understand and closely monitor our own investments. Financial professionals often are motivated by their own financial goals, and those sometimes are at odds with their clients’ goals.