Investing is simple, but not easy. Still there are a few eternal rules that, if you can tie them well with your investment process, should make the journey profitable.
The Wizard: Do not arouse the wrath of the great and powerful Oz! I said come back tomorrow!
Dorothy: If you were really Great and Powerful, you’d keep your promises!
The Wizard: [As Toto reveals him behind a curtain] You presume to criticize the Great Oz? You ungrateful creatures! You’re lucky that I’m only holding this till tomorrow, instead of the next twenty years from now!
Dorothy: [Pulling aside the curtain] Who are you?
The Wizard: I am the great and powerful…Wizard…of Oz.
Dorothy: You are? I don’t believe you.
The Wizard: I’m afraid it’s true. There’s no other Wizard except me.
Dorothy: Oh, you’re a very bad man!
The Wizard: Oh, no, my dear, I… I’m a very good man – I’m just a very bad Wizard.
In the noted 1939 American musical comedy-drama fantasy film The Wizard of Oz, one of the lead characters Dorothy, along with her dog Toto, is swept away by a tornado to the Land of Oz. It is ruled by a tyrant in whom people had vested extraordinary powers, but who was later exposed as vulnerable as the spell surrounding Oz is broken.
The stock market is like that Wizard in which people vest extraordinary powers from time to time. Look back to the mania of 1999, or 2007, or 2015 and you’d know where I am coming from.
The promise of easy money lures more and more people to the stock market during such times when “nothing can go wrong” and “investing looks very easy.” But when the spell breaks – it ultimately does – those very people appear vulnerable. These are the times when Warren Buffett’s quote appears like a gospel truth –
Only when the tide goes out do you discover who’s been swimming naked.
Charlie Munger says –
[Investing is] not supposed to be easy. Anyone who finds it easy is stupid.
Now, that’s a great deal of wisdom packed into a few words. What Charlie supposedly means by this is that while it is pretty simple to earn average results from stocks, it isn’t easy to make superior investments and earn outsized returns for a long period of times. So people, let by the spell of bull markets, who think making great money from stocks is easy are in for a nasty surprise.
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