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5 Investing Adages That Are Still Relevant Today


Written By Soo L.
Image By woodleywonderworks
Tags Investing, market, strategies, adages,

Being able to rely on long standing investing adages can help you keep a level head when investing. Human nature hasn't changed much since the birth of investing, which makes many adages relevant for years and years. If you're new or old to investing, here are a handful of adages that can help you stay on top of your game.

1. Bulls And Bears Get Rich, But Pigs Get Slaughtered
This is a classic investing adage with an important message. If someone is overly greedy, he/she will end up getting slaughtered. Greed can be a big problem if you let it control you. When greed makes your decisions, you can be hasty and uncareful in what you do, which can cost you big when making investments. If you don't do your homework and due diligence on your next investment and make an impulsive buy, you could easily get slaughtered.

The adage states that bulls and bears get rich, meaning those who don't succumb to greed get rich. This isn't true in all cases, but the message is still valid. If you stay disciplined and careful, it doesn't matter which side of the fence you're playing (either a bull or a bear), you can still make a handsome profit. To help put this adage to work in your investing life, remember to keep your your emotions and greed in check.

2. Be Fearful When Others Are Greedy, And Greedy When Others Are Fearful
When others are fearful, there is less demand, and when there is less demand, and prices are lower. This adage teaches that it is important to take advantage of these types of situations because, like greed and other emotions, fear can make people act irrationally. If you follow the crowd and are greedy when others are greedy and fearful when others are fearful, you'll just be following the trends and playing catch up with the crowd. This type of investing strategy is hardly effective because usually all of the profits are taken before everyone else learns about it.

The adage teaches to take advantage of opportunities in markets where fear has an unrealistic effect on the price of things. An example of this was on September 11th, 2001 where stocks plummeted so quickly that the US markets had to close. Fear had a tremendous effect on the entire stock market and there were certainly bargains for any investor.

As with any investment, there is no certainty in anything you do, Even if you are greedy when others are fearful won't automatically make you rich, but having a non-herd mentality can give you an edge. The first adage on this list gives a warning about the danger of greed, which is still relevant to this adage. Even though it recommends being greedy, it is still important to keep your greed under control.

3. Never Try Catching A Falling Knife
This adage is an important counter to the previous one. While it is important to not be another sheep in the herd, it is also important to not be too much of a contrarian. If you see other people are fearful over a certain investment and are selling, there is a chance that they're letting their fears get the best of them, or there is a very legitimate reason why people are selling. If you get involved in an investment that's plummeting and you try to catch it like a falling knife, you could get cut.

Again as the first adage states, it is always important to not be too greedy. You have to do your homework and research before getting into any investment. If you don't, you might as well gamble your money at the casino. By avoiding falling knife investments, you'll be able to protect yourself from seriously damaging your portfolio. Stay away from industries and sectors that really have no future. Investments are only successful if they increase in value, which is impossible in a dying industry or sector.

4. A Rising Tide Lifts All Boats
When the economy is doing well, most companies do well as a result. This is the reasoning behind this old adage. If you ignore rising tides in economies, industries, and sectors, you could miss out on big profits. Missing out on these types of profits can hurt you because trend following is one of the easiest and most reliable investing strategies (as long as you're not the last one that follows).

If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.

5. Let Your Winners Run, Cut Your Losers
When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.

If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.

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