March 14, 2022

There’s a secret to investing that’s followed by the best, including Warren Buffett, Charlie Munger, George Soros, Ray Dalio, and even Albert Einstein. What is it? Learn what to avoid.

Most financial advice is positive because that’s what resonates with people. Nobody wants to hear negativity all the time. But when it comes to investing, negative foundational advice like don’t lose money, don’t absorb too much risk, and don’t over-leverage yourself, is often brushed aside, even though it’s quite often more valuable.

Think about it – you can’t make any additional money until you first avoid losing what you have. Warren Buffett once said, “The first rule of investing is don’t lose money. The second rule of investing is don’t forget rule number one.”

I recently asked a client if they’d be bothered more by missing out on a gain or losing part of their principal. They said losing principal would hurt more because you can’t miss what you don’t have. I thought that was profound and spot on.

Charlie Munger, the Berkshire Hathaway vice chairman, credited being “consistently not stupid” for his firm’s outstanding investing track record. He didn’t say they try to be smart, but instead try not to be stupid. Again, that’s profound and spot on, in my opinion.

Plenty of investors have pumped money into profitless companies. That’s stupidity on speed and is best avoided.

This isn’t to say positive advice is worthless. It certainly has value. It’s just that sometimes negatively slanted advice produces the positive results we all desire.